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UNITED STATES OF AMERICA. 



GIVING AND GETTING CREDIT 



By FREDERICK B. GODDARD 



Zhe Brt ot Selling 

12MO, FLEXIBLE CLOTH, 50C. 

(String anD (Betting Credit 

12VO, CLOTH, $1.00 



NEW YORK 

THE BAKER & TAYLOR CO. 

5 & 7 EAST SIXTEENTH ST. 



GIVING AND GETTING 
CREDIT 

A BOOK FOR BUSINESS MEN 



BY 



FREDERICK B> GODDARD 










NEW YORK XCl q^Q, 

THE BAKER & TAYLOR COMPANY 

5 & 7 EAST SIXTEENTH ST 

!8 95 







ir 



Copyright, 1895, 
By FREDERICK B. GODDARD 



CONTENTS. 



CHAPTER I. 
Credit and Money. 

PAGE 

The meaning of Credit.— It utilizes the present 
value of a future payment. — It neither creates 
nor destroys capital. — Credit system a vast se- 
ries of mutual dependencies. — Credit the "soul 
of commerce." — Ninety per cent of business 
done upon Credit. —Coined money the standard 
measure of values.— Is a medium, and also an 
object of exchange. — Money is supposed to 
stand still while prices of other things move. — 
The wealthy deal chiefly by Credits, they ex- 
change the title to money by checks, etc. — 
Long and short Credits. — A link broken in the 
chain. — When confidence gives way to distrust. 
— Credit unused grows rusty. — Merchants' notes 
in the market. — The simple and national rela- 
tions of buyer and seller. — The merchant a bet- 
ter judge of Credits than the banker.— The 
"nimble sixpence." 7 



CONTENTS. 



CHAPTER II. 

Of Failures and Changes in Business 
Conditions. 

PAGE 

Some failures will surely occur. —Proportionate 
uniformity in the number of failures in a series 
of years. — Average losses on credit sales. — Total 
failures and liabilities during the last thirty- 
eight years. — Business prosperous about three- 
quarters of the time. — Cardinal considerations 
in giving Credit.— Changing conditions. — 
Fraudulent and unfortunate failures. — It is the 
unexpected which makes bad debts. — Meaning 
of insolvency, failure, and bankruptcy 22 

CHAPTER III. 

Suggestions and Precautions. 

Business men should make known their financial 
position, the age of mystery passing away. — 
Applicant for Credit should prove that he is 
worthy of it. — Policy of establishing a Credit 
when it is not needed. — Chances taken with old 
patrons. — Merchants' ledger his barometer. — 
Where is the money of a tardy debtor? — "Dry 
rot" in old concerns. — "No friendship in busi- 
ness" an atrocious maxim. — Most men mean to 
be honest. — "Weakness of the Credit system. — 
Must walk by facts and not by faith. — Neither 
display nor liberality should mislead. — Should 
be not merely persuaded but convinced.— Giv- 
ing Credit implies risk.— The weakness of 
timidity and over-caution. — The cost of con- 



CONTENTS. 



ducting business. — Personal expenditure. — The 
catechism of a business house. — Red tape. — 
" Not processes but results" wanted 



37 



CHAPTER IV. 

Estimating Credits. 

Balance sheet or statement, duly signed and verified, 
the best test of a man's financial condition. — 
The construction of a statement indicates much. 
— Assets shrink, but liabilities never. — " Real" 
and "nominal" assets. — Houses in irretrievable 
difficulties holding on. — References and their 
value. —Questionable references. — The best type 
of buyers. — Overloading Credit customers. — 
Dating. — Cash discounts. — A "time to watch 
and a time to pray. " 53 



CHAPTER V. 

Points on Giving Credit. . 

Nature of the patronage upon which a credit cus- 
tomer must depend. —Agricultural, manufactur- 
ing, mining, and mixed pursuit communities. — 
Over-production. — Better stimulate consump- 
tion than try to check production. — A crusade 
of development. — Losing sight of the trend of 
affairs.— Business a matter of principles and 
methods. — Difference in men.— Luck. — The line 
between speculation and enterprise. —Amateur 
gambling. — Opinions of a New York merchant. 
— Giving Credit upon instinct or intuition. — 
The Jewish race in commercial affairs. —Credit 
in other countries 



69 



4 CONTENTS. 

CHAPTER VI. 
Collection. 

PAGE 

Enforcing prompt payments. —Differing collection 
laws of the States.— Credit obligations resting 
upon honor. — Fraudulent default. — The menace 
most effective which lies in firmness, not irrita- 
tion of speech.— The first offer of a bankrupt.— 
Circumstances should qualify final basis of 
settlement in each case. — Sending distant 
claims for collection to unknown lawyers. — 
Collection agencies, etc 91 

CHAPTER VII. 

Corporations. 

Advantages of a corporation over a partnership.— 
A favorite method of forming corporations in 
times past. — Liabilities of stockholders defined. 
— Unincorporated companies.— Industrial cor- 
porations.— Trusts.— The Sherman Anti-Trust 
Law has but little restraining power. — Many 
corporations have been based on schemes of 
dreamers and swindlers. —Special cautions in 
extending Credit to corporations 106 

CHAPTER VIII. 
The Mercantile Agency System. 

Its origin in 1841.— Early history and growth. — 
Leading mercantile agencies of the past and 
present.— Agency methods.— The usefulness of 



CONTENTS. 5 

PAGE 

an agency. — The American mercantile agency 
system unique. — The agency of the future. — The 
agency has become a necessity of trade 120 

CHAPTER IX. 

Credit Guarantee or Indemnity Systems. 

Their beginning and the principles on which they 
are based. — New and ingenious features. — Some 
notable differences between Credit insurance 
and other kinds considered. — May in time 
become a bulwark of trade. — Merchants appear 
to wish them success.— They have met with 
unfavorable conditions so far, in the business 
depression. — Must pass through their experi- 
mental stages 136 

CHAPTER X. 

A Uniform Bankrupt Law. 

The general need of such a law. — Difference between 
bankrupt and insolvent laws. — Earlier bankrupt 
laws. — Bankrupt laws in other countries. — A 
good law would operate to punish fraud, and 
protect creditors.— The Torrey Bill.— Popular 
demand for its passage.— Advocated by the Na- 
tional Board of Trade, and why 144 



CHAPTER XI. 

Panics. 

Panics since 1814, equal in number in the civilized 
countries, and practically simultaneous. — Spec- 
ulations on their underlying causes. — History 
of each panic in the United States since 1814. . 153 



6 CONTENTS. 

CHAPTER XII. 
The Panic of 1893. 

PAGE 

Its proximate cause distrust of the stability of the 
currency. — Other events which helped to 
produce and intensify it. — The demonetization 
of silver a monetary evolution. — Its effects upon 
trade.— The Bland Bill. —The Sherman Bill. — 
These measures held responsible by many for 
the crisis. — The Barings' failure. — The condi- 
tion of affairs in 1891-2.— The year 1893 opened 
with gray skies. — The Australian bank failures. 
— Gold exports. — The President's action. — 
Failures in June, and scarcity of currency. — The 
Government of India suspends free silver coin- 
age. — Congress repeals the silver-purchase 
clause of the Sherman Act, Nov. 1. — It did not 
restore confidence. — Review of affairs in 1894. 
— The export of gold checked early in 1895. — 
The turning-point in the panic. — The advocates 
of free silver coinage. — The nation demands an 
honest dollar. — Bimetallism a "back number." 
— The prevention of panics. — Panics beacon 
lights of warning and instruction. — Their 
lessons to business men , 168 

APPENDIX. 

The assignment, insolvent, exemption, and other 
laws of all the States and Territories 195 



GIVING AND GETTING CREDIT. 



CHAPTER I. 

CREDIT AND MONEY. 

Commercial credit is the name of that trust 
which is reposed in men because of their char- 
acter and resources. In other words, it is an 
estimate of ability and disposition to fulfil busi- 
ness engagements which confers purchasing 
power; power to command the industry or the 
capital of others. 

Credit is the opposite of money, for it pays 
nothing. Debt is a thing to be paid, and money 
is the thing that pays. But the value which is 
attached to a merchant's word, the skill and 
experience he has acquired, and the relations he 
has established, must surely be considered, in 
some sense, as capital. 

The man who buys with money uses the real- 



8 GIVING AND GETTING CREDIT. 

ized profits of the past. If he buys upon credit, 
he utilizes the present value of a future pay- 
ment. He promises to pay a sum of money, 
and gives the creditor a right of action against 
him if he fails to pay ; this is the legal basis of 
credit. If, by the lapse of time, or a bankrupt 
law, he is legally discharged, the obligation is 
not thereby extinguished ; the creditor is merely 
denied the use of the law to enforce his claim. 

Credit neither creates nor destroys capital ; it 
merely transfers to the debtor the property of 
the creditor, and one is plus only by as much 
as the other is minus. 

If, for example, five men buy from each 
other, consecutively, a thousand dollars' worth 
of goods, and each gets the note he receives 
discounted, five thousand dollars are thus 
brought into circulation, but no new value is 
created. If the last purchaser fails to pay his 
note, and none has surplus capital, the loss 
of a thousand dollars must run along the line, 
and each becomes bankrupt. Yet the goods 
may still exist, and, except in the confusion and 
distress which follow, the community is neither 
richer nor poorer than before. 



CREDIT AND MONEY. 



9 



This is the condition of affairs when credit 
becomes too much expanded and the crash of 
widespread bankruptcy sponges the slate. It 
shows that the credit system is a vast series of 
mutual dependencies, and that the solvency of 
merchants rests largely upon that of their 
neighbors. 

Credit is a tax upon labor, because prices on 
credit are higher than for cash. Those who 
take credit and pay, are charged to make up 
average losses from those who do not pay. 
The good insure the bad, so to speak, and cash 
discounts show the cost of credit. 

No one becomes bankrupt who does not owe. 
Credit is, therefore, a cause of bankruptcies. 

Credit favors extravagance and speculation. 
It is easy to spend or risk money which has 
cost neither labor nor self-denial, but merely a 
promise to pay hereafter. Social economists 
say that a family which buys its supplies on 
credit spends much more than if it pays cash. 
Credit stimulates demand and raises prices, yet 
it is a blessing to the sick or unemployed work- 
man, because it enables him to draw upon the 
future for his necessities. 



10 GIVING AND GETTING CEEDIT. 

Credit pays capital for permitting itself to be 
employed in reproduction, and transfers it from 
hands that cannot use it into hands that can. 
It enables those who have industry but no cap- 
ital to enjoy the advantages of both, and leads 
it into channels through which commodities 
are moved over the civilized world from pro- 
ducer to consumer. 

Without credit, the present business of the 
world could not be transacted. Not all the gold 
ever taken from the earth could perform its 
service. 

It constructs railways, opens mines, improves 
farms, and builds houses: it is "the soul of 
commerce," an agent and promoter of civili- 
zation wherever human energies can be 
exerted. 

Credit is the fruit of a settled condition and 
was therefore unknown in the early stages of 
society. It has succeeded the primitive periods 
of barter and money, or cash, and appears only 
when the observance of contracts is enforced by 
public authority. Wise and beneficent credit 
follows the largest personal liberty, but is op- 
posed to every form of misrule and anarchy, 



CKEDIT AND MONEY. 11 

and flourishes best under the wing of strong 
and secure government. 

It is estimated that from ninety to ninety-five 
per cent of the world's present business is trans- 
acted upon credit. Daniel Webster declared 
that " credit has done more a thousand times to 
enrich nations than all the mines of all the 
world." 

Real or metallic money, coined by public au- 
thority, is the standard measure of values which 
denotes and carries in itself an exchangeable 
value equal to that of the average quantity of 
labor required to mine and coin its metal. It 
is therefore not only a measurer and medium of 
exchange, but an object of exchange, like other 
products of labor and capital. 

It is this intrinsic property which insures ab- 
solute confidence in it, without which there is 
sure to be confusion and distress. One of the 
chief causes of the panic of 1893 was that while 
gold and silver were equal in legal-tender qual- 
ities, their relative value was unstable. 1 

1 Silver dollars are an unlimited legal tender in the 
United States. In Great Britain silver is a legal tender 
for forty shillings. A legal-tender dollar contains 412£ 



12 GIVING AND GETTING CKEDIT. 

The price of a thing, which is its trade or 
commercial value, may fluctuate according to 
demand and supply ; money is also subject to 
constant oscillations between plenty and scar- 
city, but it is supposed to stand still while prices 
of other things move. As a gold dollar is a 
unit of value, we cannot think of it as worth 
more or less than a dollar. Its pulsations of 
commercial value are not registered in itself, 
but in the prices of staple commodities; in- 
crease their supply and they become cheaper; 
increase the relative quantity of money and they 
tend to rise in price. If business stagnates, less 
money is needed; consequently it becomes more 
abundant, with an easy rate of interest, which 
encourages enterprise and advancing prices. 

Money is also a token of credit for labor per- 

grains of standard silver. The faith of the Government 
is pledged to maintain its current parity with gold. 
The " free silver" advocates desire that the Government 
shall coin all the silver offered by any person, at the 
ratio of sixteen to one with gold. 

The Act of June 9th, 1879, provided that the subsidiary 
silver coin of the United States should be legal tender 
in all sums not exceeding ten dollars. Five-cent nickel 
pieces are legal tender to the amount of 25 cents ; one- 
cent pieces to the amount of 4 cents. 



CREDIT AND MONEY. 13 

formed. Bastiat says, " Money is, in effect, an 
order to pay to bearer a service equal to that 
which he has rendered mankind." Burke called 
gold and silver "the two great recognized 
species that represent the conventional credit 
of mankind." 

Paper money is merely a promise to pay in 
metallic money. Coin money is the standard, 
paper money the instrument. Being more con- 
venient, it is seldom converted into coin unless 
the holder becomes alarmed. 

Perhaps the wealthy actually handle less 
money than the poorer classes, because they 
deal chiefly by credits. They exchange the title 
to money. They deposit checks in bank and 
draw checks upon it. The principal function 
of the bank is to transfer credits from one ac- 
count to another, and it neither receives nor 
pays out much cash, relatively to the amount of 
its transactions. It has been said that the bulk of 
current money is used by those who are too poor 
or too little known to obtain or to utilize credit. 

Proportionally less money is now required 
to transact the world's vastly increased volume 

of business, because it has been so generally 

2 



14 GIVING AND GETTING CREDIT. 

superseded by credit, with its implements or 
machinery. But credit must rest upon some 
substantial foundation, some absolute, stable 
measure and representative of value, and to 
furnish this is, in these days, the chief func- 
tion of money. 

As confidence, so essential to credit, is best 
assured where personal and property rights are 
most secure, there is the highest civilization; 
there also is the largest variety of pursuits; 
money and credit are most active, and the rate 
of interest lowest. There, therefore, is the 
greatest demand for labor and the most abun- 
dant production. 

Credit is practically the rule in wholesale 
transactions throughout the world, while money 
passes chiefly in retail trading, or in payment 
for labor. It is obvious that the abolition of 
credit would mean a vastly increased demand 
for money. 

It is to be noted, however, that while time 
transactions may still maintain their relative 
proportion in general wholesale business, the 
credit system is undergoing certain important 
modifications. During the last few years there 



CREDIT AND MONET. 15 

has been a great decline in the price of most 
commodities, and to secure former profits a 
larger bulk of goods must be handled. Increas- 
ing competition adds to the cost of effecting 
sales, while it also decreases percentages of 
profit. Under these circumstances manufac- 
turers and merchants find it necessary to elimi- 
nate risk as much as possible from their deal- 
ings; hence the large discounts offered for 
cash, and an increasing desire to curtail the 
length of credits. 

Industry, like climate, has its seed-time and 
harvest, and the consumption of its annual 
products has its natural progression and its 
periodic completion. The distribution of these 
products under the credit system should prop- 
erly conform to this natural order of production 
and consumption. So, also, shorter credits 
should follow improved transportation, because 
goods pass more quickly from producer to con- 
sumer. But, in fact, long credits are given 
rather as a temptation to the purchaser than as 
a requirement of natural conditions. 

Every debt implies a credit, and all the debts 
are equal to all the credits. Debts for merchan- 



16 GIVING AND GETTING CREDIT. 

dise are extinguished by selling that merchan- 
dise and applying to them the proceeds. Men 
buy and give promises to pay, they sell and take 
promises to pay, and their capital or credit en- 
ables them to stand in the gap and apply those 
they take to those they give. It virtually re- 
quires all the credits to pay all the debts. 

Experience shows that, during a generally 
prosperous condition of affairs, credit is ex- 
panded until a fever of speculation culminates, 
and debts are incurred by "booming" towns, 
building railways, and similar projects. But 
when the mercantile community has been se- 
duced into devoting any considerable proportion 
of its credits to purposes outside its natural 
channels, the process of adjustment is deranged 
and confidence gives way to distrust with its 
train of evils. Our periodical panics have . in 
fact been born less of adversity than of the 
abuse of prosperity. 

Again ; it is impossible that the entire debts 
of a community could be paid at once. The 
ability to pay depends on the gradual and regu- 
lar manner in which they mature, and the 
amounts paid to-day render possible to the 



CREDIT AND MONET. 17 

business world its payments of to-morrow. 
Each line of trade establishes for itself its cus- 
tomary terms of credit. If it were the general 
custom to extend a credit of four months to 
purchasers in the boot and shoe trade, for in- 
stance, and a material quantity of intermediate 
credits of eight months be granted, a link is 
broken in the chain. 

Bankers complain that " an adequate supply 
of business paper is yearly becoming more diffi- 
cult to obtain." Some trades, notably those 
which deal in staple products, the rubber, the 
jewelry, and a few other lines, still largely re- 
tain the old-fashioned system of settlement by 
notes ; but merchandise is now chiefly sold on 
open account. So common has this practice 
become that the offer of a bunch of small notes, 
as bills receivable, for discount, is sometimes 
held by bankers to signify a "needy condition." 

At least two-thirds of all the paper bought 
by banks and capitalists in New York is 
" single name" paper. It is generally preferred 
by them to " double name" paper, because the 
simple and direct promise to pay of a concern 
whose character and resources are known and 



18 GIVING AND GETTING CREDIT. 

approved, is deemed safer than a shared respon- 
sibility which may introduce some devious fea- 
ture of accommodation for both maker and 
mdorser. 1 

It is no longer considered " kiting" for houses 
in good credit to sell their notes, and with the 
avails secure cash discounts on purchases. It 
is even currently said that if, in ordinary years, 
merchants in some lines of trade cannot float 
their single name paper and buy for cash, they 
are " undesirable as customers. " But there are 
many concerns which enjoy excellent credit in 
mercantile circles, whose paper cannot be sold 
to banks and capitalists, because it is not known 
to the note-brokers. 

An enormous volume of paper is kept afloat 
by some large houses, and they cannot afford to 
withdraw their names from the street, even 
though they have no use for the money. Credit 
unused grows rusty. "It is now," says a 

'M. Leon Say avers that the best form of credit for 
banking purposes is purely personal credit: "Le 
credit tout court sans phrase. Le credit sur gage n'a 
jamais ete que l'enfance du credit. Le credit public 
n'existaitquandles rois empruntaient surleurs reliques 
ou sur les bijoux. " 



CREDIT AND MONEY. 19 

banker, "a prevalent idea among merchants 
that a concern which does not place its paper 
in the open market, or use bank facilities, is 
not in first-class credit." 1 

Chartered trust companies and savings banks 
are forbidden by law to loan on single name 
paper ; large amounts are, however, passed into 
loans by some of these institutions, through 
brokers, with "straw" indorsements. National 
banks are not thus restricted. 

There are some who think that later on, in 
accordance with specialization, or the division 
of labor principle, the special and peculiar 
concern of the manufacturer will be more to 
fabricate, and of the merchant to distribute, and 
that the credit of both will increasingly centre 
in the banker. In other words, it may become 
still more his function to measure the responsi- 
bility of the others and supply them with cash 
for their dealings. But it is unlikely that any 



1 It will be understood that the movement of com- 
mercial affairs under exceptional conditions, such as 
have existed during the present business depression, 
may not indicate their general drift or tendency. " All 
signs fail in dry weather. " 



20 GIVING AND GETTING CREDIT. 

system will ever prevail extensively which 
brings a financial intermediary between the 
simple and natural credit relations of buyer and 
seller, unless under some form of guarantee. 

Nor is the banker, as a rule, as well qualified 
by circumstances to estimate the responsibility 
of an applicant for credit as the man from whom 
he buys his goods. It is an old saying in the 
business world that " if you wish to know any- 
thing about a bank's customer, don't ask the 
bank." The merchant's relations with his cus- 
tomer are closer. He knows whether he is a 
prudent buyer and a good business man, and 
his ledger account shows the degree of prompt- 
ness with which he has met his payments and 
the manner of his dealing. All this knowledge 
the banker can only obtain at second-hand. 

Aside from the fact that there is less risk in 
granting a short credit than a long one, there 
is also more profit in the nimble sixpence, or 
the more frequent turning-over of capital. It is 
interesting to see the figures; for example, a 
thousand dollars turned over once each year 
with accrued profits, for five years, reckoning 
the profit on each investment or sale at twenty 



CEEDIT AND MONEY. 21 

per cent, will give an aggregate of $2,488.32. 
The same sum turned over twice each year, for 
five years, under the same conditions, will 
amount to $6,191.74; and three times yearly to 
$15,407.02; in another year, or in six years, the 
thousand dollars will, under the same condi- 
tions, if turned over three times yearly, aggre- 
gate $26,623.33 as against but $8,916.10, if in- 
vested but twice a year. 



CHAPTER II. 

OF FAILURES AND CHANGES IN BUSINESS CON- 
DITIONS. 

On the Canton River numbers of people live 
in house-boats, or sampans, and raise water- 
fowl, which are taught, upon a signal, to 
scurry home to the boat as fast as possible. 
But some one of the ducks and geese must be 
the last to get in, and that unfortunate is always 
punished. And so among business men; some 
failures will surely occur because it is not 
in the nature of things that all can succeed. 
All in trade are liable to casualties and 
reverses which imply no crime, and which 
the average sagacity can neither forecast nor 
avert. 

And there appears to be as practical uniform- 
ity in the number of business failures, propor- 
tioned to the " business population," in a series 

of years, as in the social phenomena of mar- 

22 



FAILURES AND CHANGES. 



23 



riages, births, deaths, suicides, etc., in propor- 
tion to the general population. 1 

There is much disparity in the proportion of 
losses by bad debts in the various kinds of busi- 
ness, and it is difficult to obtain facts upon 
which to base calculations of the average per- 
centage of net loss on the total volume of credit 
sales of merchandise. Some estimates have 
placed it as high as T Vo of one per cent, others 
as low as T 4 o°o of one per cent. Probably it lies 
somewhere in the mean, but we shall never 
know how near we are to the truth of the mat- 
ter until we have reliable data upon which to 
generalize and reckon. We do know, however, 
that about one concern in ninety fails annually, 
on the average, and statistics show also the ag- 
gregate liabilities of all failed concerns and their 
assets. 

A French economist reckons that ten out of 
every hundred who enter business succeed, fifty 
vegetate, and forty become bankrupt. It has 
been lately calculated that in the United States 

1 The expectation of everywhere discovering regularity 
in the midst of confusion lias now become an article of 
faith with the most eminent scientific men. 



24 GIVING AND GETTING CREDIT. 

ninety-five per cent of the business men "fail 
to succeed." Things in business go chiefly by 
law, and not by luck ; the fittest only survive, 
and at least eighty per cent of those who fail, 
with liabilities exceeding assets, can find in 
themselves the causes of their failure. 

The Mercantile Agency approximates the 
total number of commercial failures in the 
United States during the last thirty-eight years, 
or from 1857 to 1894 inclusive, at 252,524, with 
liabilities amounting, in round numbers, to $5,- 
500,000,000. These constant losses have fallen 
upon the mercantile community sometimes as 
noiselessly as snowflakes, and again fitfully, in 
gusts and swirls. Some idea may perhaps be 
had of the amount of new business necessary to 
be transacted in order to retrieve them. 

Such an aggregate gives one a feeling of re- 
spect for that cautious and thoughtful Dutch- 
man, who sold his goods lower on credit than 
for cash, in order to cut down his risk from bad 
debts. These figures show the average liabil- 
ities of each failure to be about $20,000. 

No data is obtainable to show, even with ap- 
proximate accuracy, what proportion of this 



FAILURES AND CHANGES. 25 

vast sum was finally paid to creditors, or what 
relation it bears to the total volume of business 
transacted upon credit during this period. 
These and many kindred statistical facts, care- 
fully gathered, analyzed, and considered in their 
relation to currency, tariffs, and other varying 
political and financial conditions, would cer- 
tainly be of practical benefit to the business 
world and useful to public men, as a basis for 
induction to great and guiding principles. 

The history of commercial affairs during the 
last fifty or sixty years demonstrates that busi- 
ness in the United States has three phases, viz., 
prosperity, panic, and reorganization, or liqui- 
dation and settlement, and that we have been 
relatively prosperous about three-quarters of the 
time. There seems to be a rhythmic oscillation 
toward a period of extreme depression about 
every tenth or twelfth year. 

These facts are suggestive. There are times 
when a prudent merchant will take warning 
from the past; seasons when he should be ad- 
vised that a panic is "due." Again, after a 
panic, when the liquidation has been radical 
and complete, he may reasonably expect a 



26 GIVING AND GETTING CREDIT. 

period of comparative safety for expanding 
enterprise. 

It is often asserted that, in credit dealings, a 
poor man who is honest is safer than a richer 
one whose good faith is not assured. Certainly, 
men possessing a talent for business can often 
largely increase the energy and effectiveness of 
even a small capital and come safely off. Cap- 
tains like Napoleon have led a handful of sol- 
diers to victory against overmatching battalions, 
and many a poor man with superior qualities 
has struggled against great odds to the very 
front rank of fortune and credit; and many 
more will do so. 

But Mercantile Agency returns show that, in 
recent years, downright dishonesty is a less im- 
portant factor in mercantile losses than " lack 
of capital and capacity," which are held to ac- 
count for about " three-fifths of the total num- 
ber of business failures, and three-quarters of 
the aggregate liabilities." Too many are like 
Artemus Ward when he " tried to do too much 
and did it." 

Therefore simple probity, which means 
proved honesty, while a great strengthener of 



FAILURES AND CHANGES. 27 

confidence, cannot be generally accepted as a 
sufficient basis for extensive credit. It is evi- 
dent that capital and capacity should also be 
cardinal considerations. 

A man with tangible means has a hostage in 
sight. His property is, in a manner, collateral 
security that he can and must fulfil his engage- 
ments. The first steps to wealth are difficult ; 
its accumulation implies sagacity, experience, 
and thrift, or the valuable habit of saving, 
and its owner usually becomes more cautious 
and conservative than one who has no capital 
to lose. Cynical observers say that men in 
comfortable circumstances are also less liable 
to do crooked things than those who are pinched 
for money, because they are less tempted. 

Those who with a large capital do an unsafe- 
ly large business are proportionately less nu- 
merous than those who carry too much sail on 
a limited, or small, capital, and they are apt to 
be in a relatively better position to secure 
quicker and stronger support in time of need 
than the smaller concerns. Changed and 
changing business conditions render it constant- 
ly more difficult to succeed, without sufficient 



28 GIVING AND GETTING CREDIT. 

capital and business aptitude, and they tend 
also to limit losses by hastening, as never be- 
fore, the almost inevitable catastrophe. 

Steam and electricity have changed the rela- 
tions of men. 1 The range of affairs to be over- 
seen is immensely widened. We are now in 
quick touch with all the world, and every im- 

1 It is stated as a significant instance of economic pro- 
gress that the works at Niagara Falls will, when com- 
pleted, furnish and distribute as electricity "an amount 
of power available for manufacturing purposes, equal- 
ling, if not exceeding, the aggregate amount of steam 
and water power in use in all industries in the United 
States as reported by the census of 1880. " The passing 
age of steam bequeathes to us the coming age of elec- 
tricity, and probably the dreams of to-day will be the 
substantial realities of to-morrow. 

In a recent issue of The North American Review, the 
English statistician and political economist, Professor 
Mulhall, says : " If we take a survey of mankind in an- 
cient or modern times as regards the physical, mechan- 
ical and intellectual force of nations, we find nothing 
to compare with the United States in this present year 
of 1895. At the same time we see that the wealth of 
the American people surpasses that of any other nation, 
past or present. . . . The United States in 1895 possesses 
by far the greatest productive power in the world ; ihis 
power has more than trebled since 1860 ; the intellectual 
progress of the nation is attended to in a more liberal 
manner than in Europe, and the accumulation of wealth 
averages $7,000,000 daily." 



FAILUBES AND CHANGES. 29 

provement in communication and transporta- 
tion, and each labor-saving invention, adds to 
the delicacy of trade calculations. Prices fluc- 
tuate within narrower limits then formerly, but 
the element of speculation is still a factor to be 
considered in manufacture or importation. 
New facilities sweep by old ones and distance 
them, and possibility of invention, labor condi- 
tions, demand, and competition are all con- 
stantly more uncertain. A single mistake, or 
misadventure, may sweep away the enterprising 
man with small capital. 

And there is a curious disproportion between 
causes and effects, which is natural perhaps, 
because the public imagination is whimsical 
and not governed in its conclusions by laws like 
those which control ants and bees. A great as- 
tronomer said, he could calculate the motions of 
erratic stars, but not the opinions of men. For 
example, an event logically calculated to pro- 
duce a certain movement of prices upon the 
exchange, appears often to affect them in an 
opposite and most unexpected manner. 

If harvests are scanty, the products may sell 

for more than if they were abundant ; a small 
3 



30 GIVING AND GETTING CREDIT. 

crop often brings more than a large one; and 
when abundant the price may decline so that 
less can be realized upon the whole product by 
an amount many times the value of the surplus. 
And so in many things. The most sagacious 
must often grope their way, because at times 
future events and prices can as little be conjec- 
tured as if they depended wholly on chance. 

Yet, after all, in intricate and perplexing con- 
ditions the advantage remains with the master 
mind. And it is a corollary of the growth of 
such conditions in industrial pursuits that a 
constantly increasing tribute is paid to superior 
business ability and training. 

In earlier and simpler, and perhaps happier, 
times, creditors and debtors came nearer to- 
gether. Merchants and customers became 
friends ; they looked into each others' eyes and 
discussed resources, advantages, and prospects. 
But in late years, this pleasant and beneficial 
contact has become less frequent. We have no 
personal acquaintance with a large proportion 
of the people we deal with. 

In the complex march of modern affairs, busi- 
ness has become more mechanical. We deal 



FAILURES AND CHANGES. 31 

less with men than with things. We have lost 
the personal equation of our customers, or get 
it only at second-hand. The name of a debtor 
or creditor on our books is only a symbol which 
might as well be represented by a number. 

This transition has reached even local lines of 
business. One of the largest livery-stable pro- 
prietors in New York says that ten years ago he 
knew all his customers personally, while now 
he practically knows none of them, all his busi- 
ness being transacted through the labor-saving 
telephone. 

Thus intuitions, personal knowledge of 
human nature, and judgment of individual 
character can be no longer accounted as helpful 
factors in determining credit, in the majority 
of cases. The trader is also deprived of the 
personal interest and counsel of the merchant, 
and if disaster overtakes him he has none of 
the regrets of friendship for the losses of a man 
whom he never knew. His honor becomes an 
abstract sentiment without the strengthening of 
a social compact, and his course is more liable 
to be swayed by the fitful winds of his own per- 
sonal advantage. 



32 GIVING AND GETTING CKEDIT. 

But there are also compensations in modern 
progress. It has multiplied sources of infor- 
mation in regard to men and their affairs, so that 
their home reputation, resources, and the man- 
ner of their dealing can easily and quickly be 
known. The knave can no longer hide himself ; 
the shadow of a fraudulent failure follows him 
to the remotest village or cross-road, and his 
unsavory record confronts him whenever and 
wherever he again asks credit. Nor can he 
who has shown himself incapable or negligent 
when entrusted with the property of others, 
altogether conceal the facts. He must show 
that he has gained wisdom and prudence before 
he will be held as again entitled to substantial 
confidence and credit. 

On the other hand, he who is overwhelmed 
through no fraud or folly of his own, finds his 
record for probity and ability an unf orgotten 
and helpful force to put him again upon his feet. 
Yet it must be confessed that poverty often 
seems to get more punishment than crime. 
We have all seen men whose " debts were the 
only measure of their profits," and who flourish 
on fraud. They fail, force a compromise, and 



\ 



FAILURES AND CHANGES. 33 

with their booty start afresh. They ride while 
their creditors travel afoot. 1 

We have also seen cases where men have 
made an unfortunate rather than a fraudulent 
failure, and who, after giving up all and strug- 
gling for years to obtain another footing, have 
finally gone into hopeless oblivion. They could 
obtain no credit because they were destitute, 
and remained destitute because they could ob- 
tain no credit. 

These causes are often pitiable. To feel hon- 
est poverty is bad enough, but there is a deeper 



1 A thief who had grown gray in the exercise of his 
profession at length declared himself warmly in favor 
of the proposition that "Honesty is the best policy." 
The reasons he gave for his conversion were substanti- 
ally as follows : He had known two crooks who became 
tired of doing time in prison, and they agreed with 
each other that when they got out they would be 
" honest. " So, upon their release, they went to another 
city and began a legitimate business. By dint of in- 
dustry and promptness in meeting their obligations they 
prospered, and at length built up such a credit that they 
succeeded in obtaining merchandise to the value of a 
hundred thousand dollars ! Then they sold the goods 
and skipped out with the proceeds. 

"They couldn't have done it," said the old thief, "if 
they hadn't been honest." 



34 GIVING AND GETTING CREDIT. 

pang when we are made to realize that we have 
not sufficient merit to retrieve our circum- 
stances, and that the world has hopelessly for- 
gotten us. But in such a state of affairs, as 
Mr. Lincoln said of himself during the darkest 
days of the War, we " need success rather than 
sympathy." 

It will generally be found, however, that in 
the latter class of cases there is a deficiency of 
pluck, energy, or balance, and in the former, 
that the perpetrators of such frauds possess 
qualities which would have ensured to them a 
greater degree of prosperity, had they been hon- 
est and avoided the stigma of dishonorable fail- 
ure. Observation and experience teach pru- 
dent merchants that one successful crime sooner 
or later invites to the commission of another, 
and they cannot afford to forget. It is a clumsy 
rogue who, in these days, fails, in order to 
make money. He cannot cover his tracks. 
There are smoother paths of robbery. 

When the year's bad debts are charged off to 
profit and loss, the merchant may console him- 
self with the thought that the lessons he has 
learned will make him more cautious in the 



FAILURES AND CHANGES. 35 

future. He thinks that experience has satu- 
rated him with wisdom. But experience has 
been likened to the stern-lights of a ship, which 
illuminate only the path it has gone over. The 
conditions of yesterday never return ; dealings 
with one have little prophetic value in dealing 
with another; the next loss may come under 
totally different circumstances, and from a 
direction entirely unsuspected. 

Human activities present such a tangled coil ; 
character and conditions vary so greatly, that 
particular decisions respecting men and their 
affairs have no universal application. All losses 
are exceptional. We never sell goods that we 
do not expect to be paid for. It is the unex- 
pected which makes bad debts. 

As confusion sometimes exists in regard to 
the meaning of the words Insolvency, Failure, 
and Bankruptcy, it may be well to define them. 
Insolvency is a state, or condition ; Failure an 
act flowing out of that state ; Bankruptcy the 
effect of that act. A man who is insolvent can- 
not pay his debts in full ; one who fails ceases 
to pay. The bankrupt is strictly a trader who 
is "bank broken," and who legally surrenders 



36 GIVING AND GETTING CKEDIT. 

his property into the hands of his creditors. 
Bankruptcy is a legal act which dissolves the 
firm. Insolvency signifies more than bank- 
ruptcy. A concern may fail and become bank- 
rupt and yet not be insolvent, for the estate may 
pay in full; and many a man who, if pressed to 
liquidate, would be found solvent only as snow 
in the sun is solvent, may never fail or become 
bankrupt. 1 

1 An insolvent law is essentially a law by which a 
debtor is exempted from liability to arrest or imprison- 
ment for debt previously contracted, on condition of his 
delivering up all his property for the benefit of his 
creditors. 

Distinctions between bankruptcy and insolvency have 
been practically abandoned in this country, yet enact- 
ments of State legislatures for the relief of debtors are 
still called insolvent laws, those of the General Govern- 
ment bankrupt laws. 

Chief Justice Marshall says : "A bankrupt law may 
contain those regulations which are generally found in 
insolvent laws, and an insolvent law may contain those 
which are common to a bankrupt law. " 



CHAPTER III. 

SUGGESTIONS AND PRECAUTIONS. 

Intelligent business men now broadly rec- 
ognize that both the ethics and the policy of 
trade require them to make known their finan- 
cial position. It is a practice to be encouraged, 
because, as it becomes general, it tends to sup- 
press blind and undeserved credit risks which 
so often lead to irritating losses, while it helps 
to fortify the business world against panics, by 
giving it more exact knowledge of debtors' 
resources, and therefore greater confidence and 
stability. 

A man in good circumstances who refuses to 
reveal his condition renders it impossible for his 
banker, his references, or the mercantile agen- 
cies to speak with certainty in regard to his 
affairs. His reticence may naturally raise 
doubt and indirect inquiry, and it generally de- 
prives him, in some measure, of that valuable 
37 



38 GIVING AND GETTING CREDIT. 

confidence and credit which he might other- 
wise be justified in expecting. Nor can he as 
surely and quickly obtain financial help in time 
of need if his resources are unknown or merely 
conjectured. 

A prominent New York bank official, of long 
J experience, asserts that " an applicant for credit 
should be willing to make a full and frank 
showing in writing over his signature, and if 
he declines to do so, I believe that we should 
give no consideration to his application for dis- 
count. After gathering careful statistics on the 
subject, I have reached the conclusion that 
when a borrower refuses absolutely to give any 
information in this way, his credit is impaired 
and it is only a question of time when misfor- 
tune will overtake him. There is no concern 
that does any amount of business that at some 
time in its history does not need the help, confi- 
dence, and co-operation of its bank, and nothing 
should be concealed from it." 

In a recent address before the Illinois Bankers' 
Association, Hon. S. S. Lacy, ex-Comptroller 
of the Currency, and president of the Bankers' 
National Bank of Chicago, said : 



SUGGESTIONS AND PRECAUTIONS. 39 

" The age of mystery as related to business 
affairs is happily passing away. The time was 
when business men considered it akin to an in- 
sult to be called upon, when asking credit, for a 
statement of their affairs. Fortunately wiser 
and sounder views now prevail, and no right- 
minded man or well-managed institution now 
hesitates, when asking favors, to place the 
prospective creditor in full possession of the 
facts upon which credits can be intelligently 
extended." 

In February last (1895), tbe Executive Coun- 
cil of the New York State Bankers' Association 
passed a resolution recommending to banks 
throughout the State the procuring from bor- 
rowers of written statements showing their as- 
sets and liabilities. It was asserted that if this 
measure were generally adopted by banks and 
bankers, they could act with more adequate 
knowledge, and therefore with greater security, 
and that it would also, in effect, "eliminate 
from the mercantile community borrowers 
whose standing and credit are now a menace 
to reputable merchants." 

It is certainly a sound business principle that 



40 GIVING AND GETTING CREDIT. 

he who is asked for credit is justified in mak- 
ing the applicant prove that he is worthy of it, 
and that the latter is bound to furnish forth all 
essential facts in aid of the investigation which 
he virtually challenges. 

This principle would be insisted upon univer- 
sally by merchants if sellers were as much in de- 
mand as buyers, and could afford to be as inde- 
pendent. But competition is keen, and all are 
eager to sell goods, to keep things moving, and 
to reap profits. The buyer generally holds the 
honors, and rules are apt to bow before him as 
"nice customs courtesy to great kings." 

If an applicant for mercantile credit declines 
to answer reasonable inquiries, or is restive 
under them, it is a natural inference, but not 
always a certain conclusion, that he wishes to 
conceal something unfavorable. He may be 
eccentric, and yet solvent and prompt of pay. 
He may object from pride or from prejudice. 
He is, perhaps, unreasonably sensitive about 
having his credit investigated. He may be re- 
luctant to make known, not how poor, but how 
rich he is. Possibly he is mindful of the in- 
come tax, or shy on account of his property 



SUGGESTION'S AND PRECAUTIONS. 41 

taxes. There are responsible men who appear 
to regard interrogatories in regard to their 
affairs as so many impertinent conundrums. 
Others assume that it implies ignorance not to 
know their standing, and affect to be irritated 
when it is questioned. And there are some, reti- 
cent by nature, who believe in a "still hunt." 

But the real thing is not as likely to be mis- 
taken for a sham, as a sham for the real thing; 
and the cranky, reticent man is never as danger- 
ous as the plausible rogue who can prove as 
much as anybody will believe. 1 

Nature sometimes withholds stability, judg- 
ment and effectiveness from a man, and by 
way of compensation endows him with a most 
plausible tongue. But if the applicant for 
credit, as Hamlet says, "doth protest too 
much," it operates to put a sagacious merchant 
on guard. Nor, on the other hand, will he 
often let a good but buttoned-up customer slip 
through his fingers, because he cannot learn 
that he is responsible. 

1 The United States Commissioner of Labor, Carroll 
D. Wright, who knows all about statistics, puts it that 
■ figures will not lie, but liars will figure." 



42 GIVING AND GETTING CREDIT. 

The logic of business requires that capital 
should be kept as active as its safe and legiti- 
mate employment will permit. Except as a 
safety reserve there should no more be idle dol- 
lars than idle clerks. Facilities for obtaining 
information are abundant, and he who neglects 
to provide himself with them either takes blind 
risks, or limits his business and narrows his 
profits. 

Men in trade sometimes say, "I don't care 
about my credit, I buy for cash," forgetting 
that a great advantage of the capitalist is not 
altogether his hard cash, but the credit his 
capital commands, which many times multi- 
plies its producing power. Many a concern 
has failed because it neglected to establish 
credit when it was not needed, that it might 
be available in time of need. 

Chances are often knowingly taken with old 
patrons which would not for a moment be con- 
sidered from new applicants for credit. We 
are more the creatures of habit than we realize, 
and the risks we are familiar with are apt to be 
minimized against our better judgment, by long 
intercourse and safe dealing. This is natural 



SUGGESTIONS AND PRECAUTIONS. 43 

and kindly, but in business it is weak. The 
unlucky passengers are those who are on board 
when the ship goes down. 

A merchant's ledger is his barometer, so to 
speak ; it often indicates that a storm is gather- 
ing. If a customer's account is analyzed and 
it is found that two years ago he discounted his 
bills, that last year he grew tardy in his pay- 
ments, that he pleads for " dating," and is slower 
still this year, there is some reason for it. Is he 
doing too much business for his capital? This 
can be ascertained. Has he lost his money? 
If not, it is surely not in the right place. In 
either case it is time for the merchant to take 
careful bearings and perhaps shorten sail. 

Prudence and precaution surely do not con- 
flict with the Golden Rule, neither do they im- 
ply truth in the popular but atrocious maxim 
that there should be "no friendship in busi- 
ness." It is true that sharp competition is not 
a nourisher of sentiment and that principle is 
better than feeling. Damon and Pythias have 
become rivals in the race for money, and fin de 
Steele friendship is apt to be more a matter of 
calculation than of emotion. 



44 GIVING AND GETTING CREDIT. 

Yet withal, keeping in mind Thoreau's bon 
mot, "Good heart, weak head," cordial and 
friendly relations are quite compatible with 
strict business principles and mutually benefi- 
cial. Trade would become a dismal and de- 
pressing pursuit indeed, if all kindly, disinter- 
ested, and generous sentiments were to be 
banithed from it. 

Admitting that, in a large and general way, 
there is a law of average losses from bad debts, 
it can have no bearing upon individual risks, 
because each has peculiar circumstances which 
call for the exercise of special scrutiny. Giv- 
ing credits upon the chance that only a certain 
percentage will turn out badly is like shooting 
without aim. 

As eternal vigilance is the price of liberty, so 
also it is the price of success in giving credit. 
It does not follow that because a man has paid 
many times he will pay again. Argus eyes 
have time and again warded off serious losses 
by discovering signals of "dry rot," or of dis- 
tress, in concerns whose solvency was not ques- 
tioned in the community. The wisdom of fifty 
men is not the wisdom of one multiplied by 



iA 



SUGGESTIONS AND PKECAUTIONS. 45 

fifty. If the one is alert enough to discover new 
and leading facts, he may have a clearer vision 
than all the rest. A failure seldom occurs that 
some one does not get an inkling of it before- 
hand. 

The majority of men prefer to be, and mean 
to be, honest, but it is natural to be hopeful and 
to present the most sanguine view of one's own 
circumstances and prospects. The tendency is 
to advertise profits and conceal losses. Men do 
not talk of ill luck until near the end of the 
struggle. Rumor usually magnifies wealth and 
soon becomes current opinion. Many walk 
about in a popular halo of stocks and bonds 
who cannot pay their debts, and the general be- 
lief in their mythical possessions enables them 
to flourish, at least for a time. The weakness 
of the credit system lies in the fact that a 
man's credit depends, not upon his real worth 
or property, but upon his reputation for having 
it, and he is tempted to puff himself. 

Neither common report, good birth, good 
clothes, good address, political reputation, fame, 
nor evangelical piety, establishes a sufficient 
basis for credit. Men in high station some- 



46 GIVING AND GETTING CEEDIT. 

times have a hearty contempt for their pecu- 
niary obligations. An English nobleman said of 
a man, that he had muddled away his fortune 
in paying tradesmen's bills ; and Pelham argues 
that it is respectable to be arrested for debt, be- 
cause it shows that the party once had credit. 
Our business salvation requires that we walk 
by facts and not by faith. 

Display will not mislead a sensible business 
man, neither will excessive liberality. It has 
been said that there is perhaps no character so 
seldom met with as that of a man who is strict- 
ly reasonable in the value he sets on property; 
who can be liberal without profusion, and eco- 
nomical without avarice. The chief end of man 
is not to accumulate dollars, but the majority 
of men cannot pay their honest debts without 
being frugal and saving; and those who gratify 
themselves when they cannot afford it, do so at 
the expense of others. Thrift implies the habit 
of sacrificing present enjoyment for future 
good. 

A good merchant will not permit his confi- 
dence to precede knowledge, or his action to 
blunder on in the front of thought. He must 



SUGGESTIONS AND PRECAUTIONS. 47 

be convinced, not merely persuaded, before he 
will entrust his property to others. He realizes 
that giving credit implies risk, and also that he 
is not in business altogether for his health, but to 
make reasonable ventures for the sake of profit. 
He will recollect that there is a hundred -fold 
more good business than bad in the world, and 
while he makes safety the chief consideration, 
he will also guard against the weakness of 
timidity and over-caution. He will be deliber- 
ate, but enterprising also and steadfast. 

The cost of conducting a business is a highly 
important consideration ; and, as a general rule, 
expenses do not increase in proportion with 
the volume of business. A leading Mercantile 
Agency made some special investigations along 
this line at the request of a New York bank presi- 
dent. Eleven representative concerns in vari- 
ous lines, doing an annual trade of $109,000,000, 
showed expenses of $6,925,000, or an average of 
about 6 1-2 per cent, as follows : 



Per Cent. 

Jobbing hardware, one house 15 

Jewelry, one house 15 

Steam pumps, one house 15 

Railroad supplies and machinery, one house 10 



48 GIVING AND GETTING CREDIT. 



Groceries (no liquors) two houses : Per Cent. 

One house 6 

One house 6| 

Groceries (with liquor) one house 8 

Dry goods, jobbing, two houses : 

One with annual business of $40,000,000 . . 5£ 

" " " " " $10,000,000 6± 

Commission dry goods, one house, with annual 

business of $10, 000,000 1£ 

Commission woollens, one house 2| 

Similar statistics taken from the statements 
made direct to the same gentleman by ten leading 
houses in representative lines of business, show : 

Total annual business $12,693,000 

Total expenses 900,000 

Percentage of expenses to annual business, a 
small fraction over 7 per cent, proportioned as 
follows : 

Per Cent. 

Eetail dry goods, two houses : One 20 

One 16.6 

Wholesale groceries, two houses ; One in New York 3. 5 

One West 5 

Wholesale hardware, one house 9 

Wholesale clothing, two houses : One 5.7 

One (reputed close and economical) 3.6 

Wholesale tobacco, two houses : One 2 

One 4 

Manufacturing cigars, one house 4.9 



SUGGESTIONS AND PRECAUTION'S. 49 

The matter of personal expenditure is also 
worthy of attention, because many failures are 
due to this item. Extravagant living is even 
more ruinous than light profits, because, while 
the former is never relinquished except under 
compulsion, the latter may improve. 

Those who in prosperous and piping times 
have established stylish social relations find it 
particularly hard to retrench when business de- 
clines and the income is impaired. They 
sometimes shrink from making known the act- 
ual condition of their affairs, even to their own 
families, and enforcing the necessary economy, 
so they grow poor, in order to keep up the ap- 
pearance of being rich. 

Some houses have an exhaustive formula of 
questions prepared, to which satisfactory an- 
swers are obtained before a new account will be 
opened. The paper is then filed away for future 
reference. The catechism given below is prac- 
tically the one now in use by a successful house 
in New York city : 

Full Dame? 
Locality ? 
Age? 



50 GIVING AND GETTING CREDIT. 

Nationality ? 

Nature of business? 

Capital in business? 

Capital outside of business? 

Volume of business to capital? 

Has the business been profitable? 

Withdrawals for personal expenses? 

Expense of conducting business preceding year? 

Nature of the assets? 

Liabilities? 

Previous dealings with whom? 

Who are the principal creditors? 

Agency rating? 

References ? 

Past record ? 

Ever failed? 

Ever had a fire? 

Married? 

Habits? 

Ability? 

Industry ? 

Experience? 

Punctuality? 

Speculative outside? 

Insurance? 

Partners, general and special? 

Family connections? 

Contingent liabilities, as indorsements, etc? 

Remarks. 

Definite and verified answers to all these 
queries should certainly furnish a basis for posi- 
tive conclusions. But not every man whose 
trade is desirable will permit himself to be led 



SUGGESTIONS AND PRECAUTION'S. 51 

solemnly to the " sweat box" and put through 
such a formal inquisition. 

A man of tact can, however, bring out many 
of these facts, with clews to other facts, in an 
easy conversation, and obtain the rest from col- 
lateral sources. 

A sensible business man, opening an account 
with strangers, should know, and does know, 
that they must somehow acquire knowledge of 
his responsibility. And with such a customer, 
a courteous and expectant attitude at the proper 
moment is often the only interrogatory needed 
to elicit a voluntary statement. 

It is only leading and influential houses that 
can carry much red tape in these days of com- 
petition. We can all sit on the fence and order 
the mountain to come to us, but if it will not 
come, we go to the mountain. It is easy to 
make all sorts of rules, but with the great 
majority of concerns the rule that is never 
broken is the rule of expediency. "I do not 
want processes, but results," said Jay Gould. 

A travelling salesman has called many times 
upon a firm, and at last he secures an order out 
of the very teeth of a dozen fierce competitors. 



52 GIVING AND GETTING CREDIT. 

He is instructed to investigate the standing and 
character of his customers, but when he begins 
to propound the usual questions, the buyer says, 
"Oh, I have no time to go into all that. If you 
are afraid, you can cancel the order. I can get 
all the goods I want in a dozen directions." 
This firm is probably good, and what is the 
salesman to do? He will do the best he can. 
He will act, and his house will act, upon collat- 
eral information. 



CHAPTER IV. 

ESTIMATING CREDITS, ETC. 

The most searching and decisive test of a 
man's actual financial condition is his balance 
sheet, or statement, signed by himself and fully 
verified. Other information concerning him 
may be misconceived, or uncertain, but there is 
no mistaking such a presentment of his affairs. 
Nor can he wriggle away from his written 
statement as he might from his verbal declara- 
tions. If it is garbled, if the assets are wilfully 
placed too high and the liabilities too low, in 
order to obtain credit favors, or an agency 
rating, the maker braves the penalty of fraud. 

The construction of a statement, or the man- 
ner in which it is made up, indicates much as 
to the business methods of the concern which 
makes it. Some statements are plain, explicit, 
comprehensive; others vague, confused, and 

perhaps equivocal. 

53 



54 GIVING AND GETTING CREDIT. 

An ambiguous statement points at one of two 
conclusions : if it is a frank transcript from the 
books of the applicant for credit, and does not 
set forth his condition clearly, he is ignorant in 
regard to his own affairs. He is not a good 
business man. On the other hand, if it is a 
case of suppressio veri and suggestio falsi, it 
is a trap. 

More than one instance is upon record in re- 
cent years where two members of an important 
firm have made simultaneous statements of its 
affairs unknown to each other, which varied 
greatly in essential respects. 

The liabilities and receivables of a house are 
constantly varying quantities, and so also is the 
relative proportion of cash; a statement made 
at one season should therefore be considered 
with relation to the probable position at another. 
A trader will, for example, appear to be upon a 
much stronger and more conservative footing 
after he has made his collections and paid his 
debts of the past season, than when, a few 
months later, he is extended between the pay- 
ables and receivables of the next active season. 
Large outstandings, in proportion to the amount 



ESTIMATING CREDITS, ETC. 55 

of business, imply either too liberal credits, or 
slack collections. And it is generally regarded 
as against the canons of credit for a merchant 
to permit any concern to owe him more than 
twenty or twenty-five per cent of its capital. 

In analyzing a statement, special heed should 
be given to the capital, volume of business, and 
the average time of credit given, taken in rela- 
tion to each other. The larger the amount of 
business, and the longer the credit given, the 
heavier may naturally be the liabilities of the 
average concern, while, of course, a small busi- 
ness, with moderate capital, should show but 
small liabilities. 

Two values may be estimated upon every 
man's estate — one before, and one after failure; 
and the effects of the contingency should be 
kept in view. Assets shrink, but liabilities 
never. Traders' merchandise, and accounts re- 
ceivable, are said to net, on the average, cer- 
tainly no more than sixty or sixty-five per cent 
under the process of winding up for the benefit 
of creditors; and the manufacturer's machinery 
and plant but twenty or twenty-five per cent. 
In fact, machinery, in such cases, is often sold 



56 GIVING AND GETTING CREDIT. 

for old iron. If, therefore, the assets of an aver- 
age concern do not considerably exceed its 
liabilities, it is really insolvent if compelled to 
liquidate; although, if circumstances favor, it 
may continue, meeting its engagements, and 
gaining financial strength. 

As a rule, merchandise is a quick asset at 
current value, in proportion to its nearness to 
raw material. That is to say, articles like cot- 
ton, wool, leather, iron, rubber, etc., can gener- 
ally be turned into cash with less delay and loss 
than their manufactured products, such as cloth, 
garments, shoes, hats, hardware, etc. In mod- 
ern times, the more labor expended upon a raw 
product, the further it is removed, as a rule, 
from a general into a more special and narrow 
field of demand. 1 

There is too often a vast disparity between 
"real" and "nominal" assets. The best ma- 
chinery will not wear forever, and experience 



1 Growers' products, in fact, sell for cash all over the 
world, except in New Zealand, where, according to our 
consular reports, "articles of luxury," strangely enough, 
command cash returns more readily than do the neces- 
saries of life. 



ESTIMATING CREDITS, ETC. 57 

has shown that its worth is soon impaired, more 
or less, by new inventions. Soiled and unfash- 
ionable stock accumulates ; goods held over de- 
preciate; doubtful and worthless book-accounts 
multiply. Surely the statement of an upright 
man of business should reflect these facts. If 
he stands upon absolute verities, he will reso- 
lutely charge off such shrinkages, and place the 
value of his assets upon a real basis. 

Where real estate figures in a statement, the 
mortgages and liens should properly be scheduled 
as liabilities, because they are a claim upon the 
general assets if the real estate does not satisfy 
them. In many statements the equity is merely 
shown as an asset. 

Real estate is slow to be realized upon, and 
seldom brings schedule prices at forced sale. 
It is very likely to be blanketed with the heavi- 
est possible mortgage before it reaches the as- 
signee, and, under such circumstances, the value 
of the equity remaining is problematical. 

It is complained that many houses, in irre- 
trievable difficulties, have a propensity to hold 
on too long. Ethics would seem to require that, 
when a concern knows itself to be hopelessly in- 



58 GIVING AND GETTING CKEDIT. 

solvent, it should quit at once, and divide up, 
rather than keep on to multiply debts, filch a 
living, and end up with a lot of doubtful or in- 
iquitous preferences. It was said of one such 
firm that, at last, its affairs were easily wound 
up, for its only remaining asset was a silver 
watch. 

A statement sometimes shows a respectable 
capital which is nominally at the risk of the 
business, but which is really borrowed from 
relatives, with the secret understanding that 
they shall be preferred in case of disaster. 

The balance carried in bank is good construc- 
tive evidence of financial strength, when it is 
not forced, like blossoms in winter, and bears 
due relation to other circumstances. But insol- 
vency may lurk behind a big bank account, and 
knaves have too often flourished it as a decoy, 
for prudent business men to accept it in these 
days as a voucher of solvency and decisive 
gauge for credit. 

"We are not prone to do much exhaustive 
thinking, or be painfully anxious over the risks 
which others may assume ; although it may be 
said that, as a rule, American business men 



ESTIMATING CREDITS, ETC. 59 

cheerfully reflect their honest opinions, when 
reference is made to them in regard to the stand- 
ing of an applicant for credit. And if two or 
three houses, known to be respectable and con- 
servative, have acquired sufficient confidence in 
a man to give him a line of credit, and approve 
him to others, it is a fair presumption that he 
is, in some degree, worthy and responsible. 

But such evidence is not always conclusive. 
A smart trader will see to it that those to whom 
he refers are qualified to speak favorably of, at 
least, their own specific experience with him. 
And it sometimes happens that houses thus re- 
ferred to have been influenced to extend credit 
to the party in question solely by the example 
and reported experience of other houses, and 
that none have knowledge of his actual condi- 
tion beyond that derived from rumor, or their 
own personal and limited dealings with him. 

Again, it is conceivable that a trader may be 
heavily indebted to a house which knows him 
to be honest, but extended, and struggling along 
with an impaired, or limited capital; to weaken 
his credit would be fatal. Under such circum- 
stance, a not over-scrupulous creditor might con- 



60 GIVING AND GETTING CKEDIT. 

ceal the facts, and even help to fatten his 
debtor's assets against his probable bankuptcy. 
On the other hand, if he is a good and desirable 
customer, business jealousies and rivalries 
might prompt an artfully dubious report of 
him. Such cases especially manifest the value 
of the Mercantile Agencies, because, being 
wholly disinterested, their reports are made 
without prejudice or partiality. 

Nor are instances lacking where the confident 
statements of a leading house have procured 
credit for a little-known dealer, whose subse- 
quent failure exposed the fact that the concern 
which stood as his reference held judgment 
notes against him at the time they recommended 
him for credit ; or, perhaps, a chattel mortgage 
upon his property, equivalent to a judgment 
execution and levy. It has been well said, that 
" the integrity of the many renders possible the 
fraud of the few." 

The remark is often made, that concerns which 
cannot be trusted to " stand without hitching" 
always manage to obtain credit in some direc- 
tion. The bait of a big profit is sure to allure 
some confiding dealer, and he who is regard- 



ESTIMATING CREDITS, ETC. 61 

less of how many cents he will, by and by, pay 
on the dollar can afford to be very generous in 
the small matter of prices. 

Men of this stamp measure their strength by 
another's weakness, and are quick to see a vul- 
nerable point. They bank largely on eagerness 
to sell. If the most desirable and salable goods 
"fly too high" for their pretensions, they be- 
come interested in the surplus stock of the last 
season, slightly unfashionable or shop-worn 
goods, "job lots," anything which, while hav- 
ing good value, it is especially desirable to be 
rid of. And they often inspire a degree of confi- 
dence in their intention to pay by artfully hag- 
gling over prices. It has been said, that the 
business of the world would be transacted by 
men possessing real means, if it were not antici- 
pated bj r men without means. 

The desire to sell goods is so general that the 

trade of responsible concerns is almost daily 

solicited, wherever in the country they may be 

located, and they will probably be offered all the 

credit they are entitled to, if they make known 

their condition. They need not beg for it. The 

receipt of an unsolicited order from a stranger 
5 



62 GIVING AND GETTING CKEDIT. 

for the common sorts of merchandise is un- 
usual. If such order comes from a locality not 
naturally tributary, it should be viewed with 
increased caution, and only accepted when good 
reasons are made apparent for wandering away 
from customary and more convenient sources of 
supply. 

Yet the margin of profit on some articles is 
such that the vender can lose every other bill and 
still grow rich. Sheet music, etchings, prints, 
chromos, and other things, the chief cost of 
which lies in the preparation of plates, or facili- 
ties for their multiplication at a trifling expense, 
are examples. So also are proprietary medicines 
and similar articles. It is evident that dealers 
in such goods can afford to take greater risks 
than those who sell metals, sheetings, or any 
kind of staple commodities. In fact, some 
dealers in the former say they never refuse an 
order, if they can learn that the party ordering 
is actually in trade, and is not a fraud. 

The type of buyers who inspire most confi- 
dence is frank, but not garrulous. His claims 
to credit are stated clearly, candidly, confident- 
ly, but in few words. He meets no doubt until 



ESTIMATING CREDITS, ETC. 63 

the doubt arises. He identifies goods for his 
own conclusions, and buys, or rejects, upon his 
own judgment, and his " no" stands for a fact 
against all the arts of persuasion. He has a 
keen eye to price, but an equally clear and in- 
telligent vision for quality and style, and he 
catches opportunity on the wing. The bear- 
ing of such a man proclaims that he is a living 
force, and implies that he at least deserves con- 
sideration. 

If, in times of financial stringency, it became 
necessary for such a merchant to press his claims 
for discounts or favors upon his bank, he will 
set forth his needs frankly , and urge the equities 
of his case with dignity. He who cringes, and 
pleads for financial favors, or for credit, creates 
an unfavorable impression. It was Stephen 
Girard who said, to one that shed tears when 
asking for a loan : " The man who cries when 
he comes to borrow will cry when he is asked to 
pay." 

The customer who can be overloaded with 
goods by a pushing salesman is a very question- 
able risk. If lie is without experience, it is prob- 
able that, later on, he will acquire it at the ex- 



64 GIVING AND GETTING CREDIT. 

pense of his creditors. If he is naturally credu- 
lous, irresolute, and infirm of purposes, he is sure 
to be a prey upon all sides, until he goes to the 
wall. 

Wise old Dr. Samuel Johnson made, many 
years ago, a practical commentary on the mod- 
ern practice of forcing goods upon a reluctant 
customer. In urging the abolition of imprison- 
ment for debt, he declared that failure to pay 
was not always the crime of the debtor alone, 
because the creditor shares the act, and often 
more than shares the guilt of improper trust. 
He invites, or urges, to the contraction of a 
debt, in the hope of advantage to himself; and 
proportions his profit to his own opinion of the 
risk. And therefore, if the debtor is unable to 
pay through misfortune, he should not be pun- 
ished by the creditor, because both concurred 
in the contract. 

" Dating," means that goods sold, say in Janu- 
ary, are to be delivered at once, but not invoiced 
until March or April, when the specified term 
of credit will begin. Purchasers insist that 
they are justified in asking such credit conces- 
sions, because of the exigencies of the season, 



ESTIMATING CREDITS, ETC. 65 

etc., and dating has, in some lines, become a 
prevalent custom. A large house in New York 
states that "dating" and "time stealing," or de- 
lay in payments due, cost it, on an average, 
more than its losses from bad debts, and many 
other houses estimate their loss of interest from 
this source as a serious item. 

Some dealers think, or pretend to think, that 
if they pay interest on past-due bills and ac- 
counts, the creditor should be well satisfied, and 
make no complaint. But not so : the merchant 
is not a banker, and six per cent interest does 
not reimburse him. He needs his money to pay 
his own bills, and he needs it when it is due. 
Not to receive it is disappointing, and in viola- 
tion of business equities. He is held strictly 
to the fulfilment of his own obligations, and he 
has the right to expect, and demand, that others 
shall keep their promise with him. 1 



1 Suppose a trader owes half a dozen concerns, on ac- 
count, $10,000, payable about January 1. He has in 
hand $5,000, November 1, but sees no way to get the 
other $5,000 until March 1. It is obvious, that if he 
pays half a book- debt two months before it is due, and 
ihe balance two months after it is due, he averages the 



66 GIVING AND GETTING CREDIT. 

No merchant can reasonably expect to flour- 
ish long, in these days of driving competition, 
if he pays higher prices for his goods than his 
neighbor. But, as a rule, he is charged more 
for them, if he is careless and tardy in his pay- 
ments, or if, from any cause, his credit is im- 
paired or doubtful. 

Lax business methods, or limited resources, 
multiplied into high prices for goods, sooner or 
later, give failure as a product. The old Ger- 
man proverb applies to mercantile affairs with 
increasing force : " Lange Krankheit ist sicher- 
todt." ("Long sickness is sure death.) And 
there are some who insist that, in this era 
of sharp competition, if a merchant cannot make 
his payments so as to secure cash discounts, the 
sooner he winds up, the better it will be for all 
concerned. 

A Jewish merchant in New York, who for 

payments. He should, therefore, promptly apply his 
$5, 000 to his debts, pro rata. This may not be altogether 
as satisfactory to the merchant as regular payments on 
time, but few will complain, and it is better for all 
parties that the debtor should not wait until the last 
moment to pay his $5,000, and then plead for extended 
time on the remainder, with, or without, added interest. 



ESTIMATING CREDITS, ETC. 67 

more than forty years has maintained his credit, 
and grown rich in fair dealing, gives the follow- 
ing leaf from his experience: On a pleasure 
trip to the West, a few years ago, he read in 
a local paper that the head of a firm, which had 
a large credit account with him, had become in- 
volved with a woman in his employ, and that 
his wife had obtained a divorce on the usual 
statutory grounds. Without delay, he instructed 
his firm to close the account as soon as possible, 
and a few months later the Western firm failed 
disastrously. 

A prominent merchant in Philadelphia re- 
lates the following : " One of the best men whom 
I ever knew, and who was in business for him- 
self, called upon me one day to get me to ac- 
company him to the noon-day prayer-meeting, 
at which he was a regular attendant. In 
answer to his solicitation, I said: 'No, sir; 
twelve o'clock to one o'clock is not my time to 
pray; it is my time to watch.' A few years 
afterward, he was doing business as an 'agent.' 
He had overlooked the divine injunction, 'Be 
diligent in business. ' " 



CHAPTER V. 

POINTS ON GIVING CREDIT. 

It is worth while to ascertain the nature of 
the patronage upon which a credit customer has 
to depend — whether upon farming, manufac- 
turing, mining, or mixed pursuits; and what 
promise of success there is in the conditions 
which surround him. Perhaps he is attempting 
to conduct a first-class business in a poor neigh- 
borhood, or a business for poor people in a first- 
class neighborhood. 

Agriculture is the basis of the national pros- 
perity, and a farming community has always 
been considered stable and reliable. Yet, sec- 
tions are subject to the possibility of drought, 
floods, or frosts, in unfavorable seasons, which 
destroy the crops. In such cases, the store- 
keeper may be unable to collect from his im- 
poverished patrons, and become embarrassed, 
unless his resources are sufficient to tide him 

over to another harvest. 

68 



POINTS ON GIVING CREDIT. 69 

Agricultural conditions have changed essen- 
tially during the present generation. Farm- 
ing is not as profitable as in former times, and, 
in some parts of the country, farm lands have 
declined in value, while the acreage under cul- 
tivation has also decreased, which is due to the 
fact that the lands could no longer be profitably 
cultivated. ' 

1 The aggregate extent of this decrease, from 1880 to 
1890, in a number of the older States, is shown by the 
Eleventh Census to be equal to the combined total area 
of several of the New England States. This census also 
shows that, in 1890, about 2, 500, 000, or rather more than 
half the farms, were under mortgage, the rate of inter- 
est paid being from 5.57 to 12.61 per cent. About 75 
per cent of the indebtedness in the newer States ap- 
pears to have been incurred for purchase-money, or for 
making improvements on the property. 

More recent statistics indicate that the farms of the 
single State of Ohio, for instance, depreciated in value 
more than $50,000,000 during the year 1894, while the 
indebtedness of their owners increased about $8,000,- 
000. There were formerly but few renting farmers in 
the country, while now there are many, and they are 
increasing in number. In 1890, the percentage of the 
whole population inhabiting farms was 41 per cent ; in 
1894, 39 per cent. Since 1890, the rural population has 
increased but one-sixth as fast as the urban ; aporten- 
toua change to the wage-earner. In forty years rural or 
agricultural wealth has only quadrupled, while urban 
has multiplied sixteen-fold. 



70 GIVING AND GETTING CREDIT. 

Hitherto, the natural fertility of our vir- 
gin soil, and the superiority of our farming im- 
plements, have enabled us to compete with other 
producing nations in the world's markets, even 
at a prodigiously greater cost for labor. 1 

But foreign competitors multiply, and adopt 
our labor-saving inventions, and farmers' pros- 
pects grow less hopeful. In addition to other 
prolific sources of supply, Argentina now makes 
claim to a vast area adapted to the growth of 
cereals, and her surplus of wheat last year was 
upward of a million and a half tons. 

Prices of growers' products were never so low 
as of late ; and it is probable, that if anything 
like "five-cent cotton, and fifty-cent wheat," are 
henceforth to be the rule, great numbers of our 

1 The Kansas State Board of Agriculture stated, two or 
three years ago, that the average cost of raising wheat 
in that region is $3. 86 per acre, as against $5.07 in India, 
notwithstanding that the half- starved Ryot of the Gan- 
getic plains gets but five or six cents a day for his work. 
This is equivalent to saying that the cost of raising a 
bushel of wheat in India is 53 cents, as against 30 cents 
in Minnesota, the Dakotas, or Kansas. 

Professor Mulh all said recently : "An ordinary farm- 
hand in the United States raises as much grain as three 
in England, four in France, five in Germany, or six 
in Austria. " 



POIKTS ON GIVING CREDIT. 71 

farmers will abandon agriculture for more re- 
munerative pursuits, and that still more farm 
lands will lapse into wilderness. 1 

Manufacturing and mining communities, be- 
sides such vicissitudes as may arise from the 
general laws of supply and demand, are sub- 
jected to the possibility of labor troubles, which 
may impair their prosperity. It follows, of 
course, that when, in such a neighborhood, the 
number of wage-earners is diminished, and earn- 
ings curtailed, the average resident trader must 
share in the general distress. 

1 There has been a significant decline inthepopulation 
and prosperity of small towns during the last ten or 
fifteen years. It is asserted that the States of Ohio, 
Indiana, Illinois, and Iowa contain 6, 291 townships, of 
which one-half, or, to be exact, 3,144, declined in popu- 
lation between 1880 and 1890. 

A South American correspondent of the New York 
Herald wrote to that journal, in October of last year 
(1894) , as follows : 

"If Argentine agriculturists desire to extend their 
facilities for wheat-growing, they can do so to nearly 
the same area, if not more, than in the United States. 
Land that will serve for wheat-culture exists in nearly 
all of the middle and southern provinces of the re- 
public. There are at least 20,000 leagues of land, in the 
hands of the general government, suitable for cereals, 
while the area owned by private individuals is esti- 
mated to be at least 100, 000 leagues. " 



72 GIVING AND GETTING CEEDIT. 

The power of production is increasing in a 
much higher degree than the increase in the 
number of workmen employed, and it is prob- 
able that we have only seen the beginning of 
the complications which will accompany further 
industrial development. 1 

But while these facts are significant of star- 
tling possibilities for the more or less remote 
future, it is expected that they will affect exist- 
ing conditions so gradually as to have little 
immediate practical importance from the view- 
point of the ordinary mercantile creditor. 2 

1 In the 12th Annual Report of the Commissioner of 
Labor Statistics of the State of New York, made in 
February, 1895, it is asserted that "recent improve- 
ments in labor-saving machinery, especially in the 
printing trade, have caused a decrease in the number 
of employees from twenty per cent to sixty-six and 
two- thirds per cent ; in other branches of industry, the 
decrease will average eighteen per cent, and in some 
instances it runs as high as sixty per cent." These 
figures are made up from returns furnished by labor or- 
ganizations in the State. 

2 After a degree of density (of population) has been 
attained, sufficient to allow the principal benefits of 
combination of labor, all further increase tends in itself 
to mischief, so far as regards the average condition of 
the people. (J. S. Mill.) 

It is not the poor, but those with vested interests, who 
now encourage immigration. 



POINTS ON GIVING CREDIT. 73 

There is usually more cash afloat in a manu- 
facturing town, and goods are sold more nearly 
upon a cash basis, than in a purely farming 
neighborhood, and collection facilities are better 
in such localities. Traders should, therefore, be 
expected to collect more closely, and to pay with 
promptness, and they may perhaps require less 
capital to conduct their business successfully in 
such towns. 

A mixed-pursuit locality is less liable to ex- 
treme fluctuations of prosperity and adversity 
than one which is "all cotton," "all wheat," or 
"all corn," or its equivalent — a town chiefly de- 
pendent on a single industry. Paterson, with 
its ninety or more silk factories, and twenty 
thousand operatives, is an example of such a 
place; so also is Fall River with its cotton fac- 
tories, or Trenton with its numerous potteries. 
These facts will suggest to careful merchants 
the precaution of fire insurance companies, 
which refuse to concentrate risks. 

" Over-production" is held accountable for a 
full share of the jarring competition, distress, 
and failure among manufacturers and merchants 
in recent years. And, without doubt, there is 



74: GIVING AND GETTING CREDIT. 

such a thing as over-production, relative to de- 
mand ; but in no way can it be held in check 
save by its own penalties. Men's desires are 
boundless, and we shall more wisely try to stim- 
ulate the world's consumption than attempt 
arbitrarily to control production. To accom- 
plish the former is the problem and quest of the 
age. 1 

Natural law controls the development of 
human affairs as surely as it regulates the sea- 
sons ; and it is a suggestive fact that, under such 
law, the wants of men increase as they become 
civilized and enlightened. A demand arises for 
the products of more advanced nations, and the 
vitalizing energies of capital and credit multiply 
with an expanding market. 

1 Two men came into a Broadway cable car. The 
trousers of one were quite worn, and very ragged about 
the knees, while the lamentably tattered condition of 
the other man's trousers was only concealed when he 
sat down. It would be interesting to develop the 
opinions of these men in regard to the over-production 
of trousers, for instance. 

It was estimated, some years ago, that cloth was con- 
verted into clothing at the ratio of three parts materials 
and two parts manufacturing and distributing, and 
that the average annual consumption of clothing was 
about $25 per head. 



POINTS ON GIVING CEEDIT. 75 

The temperate zone was first brought under 
subjection, in virtue of its more favorable cli- 
matic conditions and fewer physical impedi- 
ments. The seeds of modern progress were not 
earlier planted in Arctic regions, because of the 
cold, nor in the Tropics, because of the heat. In 
torrid countries agriculture is hindered by dense 
forests; cleared land springs back into a jungle; 
harvests are destroyed by myriads of insects; 
the rivers are too wide to bridge; the heat 
enervates. 

But now that civilization has subdued and 
appropriated the gentler zone — now that men 
have equipped themselves with labor-saving 
implements, and harnessed steam and electricity, 
enterprise is prepared to cope with the forces 
of nature in any part of the world, and it would 
seem that things are ripe for a general crusade 
of development. 

Mediaeval Mexico lies upon our borders. The 
great natural resources of the African continent 
and also of South America invite attention, 
and the surprising result of the war between 
China and Japan is significant of tremendous 
possibilities. Newly awakened Russian enter- 



76 GIVING AND GETTING CREDIT. 

prise is already opening up vast regions with 
incalculable resources, through the near com- 
pletion of the trans-Asiatic railroad across 
Siberia to the Pacific Ocean. 

For many reasons, it is easy to believe that an 
evolutionary, economic movement may at any 
time arise, which, while largely absorbing the 
surplus capital, will also give wider scope to the 
surplus energies of the dominant races. One 
effect of such a movement might be to lessen 
the evils of so-called over-production, by extend- 
ing the markets of the world, and stimulating 
consumption of the products of civilization 
among millions who are ignorant of them now. 

But it is also possible that, when once the 
teeming, imitative races of the East know and 
prize these same manufactured products, they 
themselves will soon learn to produce and re- 
turn them upon the world in an ever-swelling 
tide. 

The current of affairs presents a different as- 
pect from different posts of observation, and 
there is usually a certain vantage-ground of 
vision from which relations and consequences 
stand out most clearly ; like that famous picture 



POINTS ON GIVING CKEDIT. 77 

in Europe, which shows neither form nor design 
but from one single standpoint. Some men and 
things require to be seen near to be well judged 
of; others are better observed at a distance. 
Lookers-on at a game of chess often see broader 
combinations than the players who are absorbed 
in making the moves. There are men, with " no 
admission except on business" written on their 
foreheads, who are so occupied with petty de- 
tails as to lose sight of the trend of their affairs. 
They are like a man in a boat, who rows hard 
and thinks he is getting on, while the man on 
shore can see that the tide sweeps him steadily 
backward. 

Take an illustration from the wall-paper 
trade. A few years ago, medium grades of this 
article sold at three times their present prices. 
Dealers who bought yearly, say $3,000 worth, 
sold, and perhaps hung it upon the wall, at a 
hundred per cent advance upon cost, and con- 
tinued to do so as the price declined. They 
had grown accustomed to this rate of profit. It 
had been satisfactory, and they saw no reason 
for alarm until, under some stress to meet obli- 
gations, they realized, perhaps for the first 
6 



78 GIVING AND GETTING CREDIT. 

time, that a hundred per cent yearly profit on 
$1,000 worth of goods was a different thing from 
the same ratio of profit on $3,000 worth. The 
store was as full of goods as ever, but they had 
only one-third of the former value, and ex- 
penses had diminished but little. The condi- 
tion of the business had changed almost insen- 
sibly, and the result has been the failure of 
many small dealers, and some manufacturers 
and jobbers. 1 

It inspires confidence in the credit of a mer- 
chant, if he is knowu to regard business, not 
merely as a series of transactions, but as a 
matter of principles and methods. These are to 

1 A Broadway merchant of judgment and experience 
says he " sometimes recommends an easy-going customer 
to compute carefully the cost of transacting his busi- 
ness each day, each week, and each month; including, 
of course, all expenses, such as rent, clerk hire, light, 
fuel, etc. Add personal expenses, and place the totals 
on a card to be kept in sight, or within reach. Keep 
the sum of sales and profits day by day, and if expenses 
exceed profits in any month retrench in some direction. " 
The same gentleman furnishes another piece of good 
advice for the trader. He says : " To hold your trade 
through hard times, keep up your assortment ; don't let 
it run down. Buy little and often. Keep everything 
in sight, and nothing under the counter." 



POINTS ON GIVING CREDIT. 79 

him what a compass is to the seaman, or a con- 
stitution to the State. They give character and 
stability to his dealings, and become a sort of 
mental machinery, which balances the judgment, 
and simplifies the solution of difficult questions. 
Real business is neither a game of cunning nor 
a dodging from one expedient to another, and its 
vision extends beyond the next dollar. 

Give two of the commoner sorts of men equal 
facilities, and one will fail while the other grows 
rich. One is a good credit risk, and the other 
is not. Upon what different meat do they 
feed? Surely they must differ in essential char- 
acteristics; in judgment, prudence, honesty, 
thrift, energy, economy, tact, diligence, etc. 
Some men are like horses trained for speed 
rather than endurance. Your fussy man is 
apt to be narrow, and to give his affairs much 
attention, and little thought. He has more zeal 
than good sense. He loses much labor for 
lack of judgment to direct it. 

The amiable, yielding man, who cannot say 
" no," is often more applauded as a horn of plenty 
by his customers than by his creditors, while the 
resolute, pugnacious man may lack tact, and re- 



80 GIVING AND GETTING CREDIT. 

pel or drive away business. One may have 
energy enough in his play, or at the call of pas- 
sion, and yet lack the power of persevering work. 
"Some men would fail in Eldorado," said an 
American financier. As before stated, those 
who do not succeed can generally find in them- 
selves the cause of their failure. 

Most people believe more or less in "luck," 
and perhaps there is something in it, but the 
luck of your successful merchant is generally 
that of having faculties and using them. It is 
the luck of forecast, insight, and judgment, 
born in the sky, to be used with energy on earth. 
It has been said that lucky men are often more 
the creators than the creatures of circumstances. 

A restless and progressive people like ours is 
prone to speculation, because it consorts with 
enterprise and growth; but ordinary business 
men, who have the reputation of being specula- 
tive, are not generally regarded as the best 
credit risks. Dreams of quickly acquired 
wealth, without industry, are apt to bear one 
away from simple integrities into very un- 
certain regions; and capital fights shy of 
"plungers." 



POINTS ON GIVING CKEDIT. 81 

Yet it is sometimes difficult to draw the line 
between speculation and commendable enter- 
prise. Popular sentiment concerning a man's 
conduct of affairs is largely modified by his ul- 
timate success or failure; and again, what at 
one time might properly be considered specu- 
lative and rashly hazardous may, at another, 
be really a prudent process of dealing. So may 
the undertaking of a wealthy man be entirely 
within the scope of his legitimate business, and 
yet a reckless, speculative venture for one with 
smaller resources. 

It is to be noted, that speculations in one's 
own line of business seldom look as inviting to 
him as something outside, with which he is less 
familiar. It is the tailor who takes stock in a 
new pegging-machine for the shoemaker, and it 
is the latter who leaves his last to invest in a 
patent goose for the tailor. 

Sharp men with schemes prefer to avoid those 
who are practically acquainted with the details 
of the project they seek to promote. There is 
no scope for the play of the imagination — not 
distance to lend enchantment. 

In very many cases of failure, it is found that 



82 GIVING AND GETTING CREDIT. 

the insolvent had become entangled in operations 
not necessarily connected with his regular busi- 
ness. " The lofty and sounding phrase of the 
manifesto" had seduced him into some specious 
undertaking, which has ended, so to speak, in a 
squirrel-track up a tree. 

Farther down the list is the business man 
who is also an amateur gambler. It needs 
no gypsy to foretell his fortunes, whether he 
runs up against faro games, habitually bets 
on the races, or plays against Wall Street on 
margins. 

If all these dollar traps were honestly con- 
ducted, and "luck" might be relied upon to 
break even, the money, in the long run, would 
surely go to the "kitty" in "percentages," 
"odds," or "commissions." It is the amateur, 
the "lamb," who "pays the freight." 

Legitimate business implies mutual advantage 
through the interchange of equivalents; it is 
humanizing and beneficent. In gambling, 
mutual benefit is impossible. It is reckless, un- 
thrifty, and demoralizing; and, once bitten by 
the gambling tarantula, the sufferer seldom 
learns wisdom from what he suffers. 



POINTS ON" GIVING CREDIT. 83 

A successful New York merchant discourses 
substantially as follows : 

" I have no use for a man who gambles or 
gets drunk, and I will not sell him goods on 
credit if I know the fact. When I open a new 
account, I ask the debtor how far he wishes to 
go, and keep him to his limit, which I place 
against his account in the ledger. I want to 
know what kind of creditors he has to lean 
upon. If his capital is limited for the amount 
of his business, I prefer that he shall confine his 
purchases on credit to a few houses. It is for 
his own interest also, because, if he buys every- 
where, and gets behind in his collections and 
payments, some one of his creditors will be sure 
to jump down on him, and close him up. I 
don't want to do business for nothing, and when 
it is necessary to say 'no,' I do so boldly, but 
without unkindness. 

" Those concerns which habitually, and upon 
the smallest pretence, make claims for allow- 
ance, or deduction, thinking they will be granted 
for fear of losing trade, I meet with manly re- 
sistance, rather than the 'mush of concession.' 
I make no such peace-offerings in business, un- 



84 GIVING AND GETTING CREDIT. 

less justice requires it. I look upon them as 
defeats, and they bring no thanks. 

" There is a little in 'luck,' but the best credit 
man is he who makes fewest losses and holds 
trade. He should have good common-sense, 
a knowledge of human nature, experience of 
affairs, and be naturally cautious and conser- 
vative. I am superstitious about giving a 
man credit after I have turned him down, un- 
less there is a change in his circumstances. 
Whenever I have been persuaded to do so, I have 
lost by it. It is a good sign to see a man take 
his sons into partnership. I am chary of a man 
who does business in the name of his wife, nor 
will I trust any concern, whatever its rating and 
repute, if my instincts are against it." 

Presentiments in regard to extending credit, 
derived from so-called " instinct" or " intuition," 
are common among merchants and salesmen, 
and such estimates are not necessarily indepen- 
dent of reason, or altogether unreliable. 

Conclusions sometimes seem to leap into the 
mind from nowhere, while the fact is that the 
thinking faculty has reasoned them out without 
realizing what it was about. They are the fruit 



POINTS ON GIVING CREDIT. 85 

of an unconscious exercise of the intellect, which 
has been swiftly registering a multitude of per- 
ceptions, such, in our case, as the appearance 
and bearing of a man, his method of buying, 
the order and arrangement of his store, and 
numerous other conditions which surround him. 

Moreover, it is a well-known fact that we are 
almost invariably attracted or repelled, in a 
greater or less degree, by the personality of a 
stranger, and we should sometimes be at a loss 
if compelled to express in words the reason for 
our impressions, 1 yet experience teaches that 
they are quite apt to be correct. Every face is 
either " a history or a prophecy," and we are rea- 
sonably justified, therefore, in paying heed, in 
the matter of estimating credit, to what we call 
our "intuitions." 

Within recent years, the Jewish race has ac- 
quired a remarkable ascendancy in financial and 
commercial affairs in most of our trade centres; 
and it cannot be denied that their keen and ac- 
tive rivalry has developed, with some, a degree 
of prejudice, expressed often by invidious re- 

1 " I do not like you, Dr. Fell ; 

The reason why, I cannot tell," etc. 



86 GIVING AND GETTING CREDIT. 

marks concerning their characteristics and 
methods. But candid men will admit that their 
success is chiefly due to a natural genius for 
business, complemented by enterprise, self-con- 
fidence, and tireless energy. 1 

It is a brilliant race, with a strange history, 
and the annals of every art, and every science, 
are adorned with illustrious Jewish names. 
They have been less conspicuous as soldiers, in- 
ventors, manufacturers, and are seldom tillers 
of the soil; but statesmanship, philosophy, 
economics, jurisprudence, medicine, letters, 
music, finance, have all been enriched by their 
labors. Nor are they less distinguished in the 
field of philanthropy and practical charity. 2 

1 The story is told of a Jewish new-comer in New 
York who, when asked how he, a stranger with small 
means, and speaking English indifferently, dared to 
plunge into competition with our two million people, 
made the characteristic reply : " But dose two million 
beeples must compete with me too, ain't it?" 

2 Those who have been led to believe that the Jews are 
generally harsh, unfeeling, and exacting employers are 
misinformed. A recent report of the United States 
Commissioner of Labor, giving statistics concerning 
the condition of working- women throughout the coun- 
try, declares that female employees are treated with 
more kindness and consideration by Jewish employers 
than by any others. 



POINTS ON GIVING CREDIT. 87 

Among our Jewish merchants are many who 
are ideal business men; just, kind, sensible, 
prudent, with a high sense of personal honor 
and obligation, and alive to the value of an 
untarnished credit. It will be admitted, also, 
that there are some who are unpleasantly avar- 
icious and selfish, crafty in dealing, "fresh" 
and arrogant in prosperity. A considerable 
proportion of our more recent Hebrew immi- 
grants are ignorant and squalid, with charac- 
teristics as repulsive to their intelligent and en- 
lightened congeners as to others. 

Yet withal, the country could but ill spare its 
enterprising and indomitable Jewish citizens; 
and surely the time has come when no social or 
commercial discrimination should confront them 
as a class, on account of race or religion. It 
is just and broadly politic that the credit of 
every Jewish concern should, like that of any 
other, stand upon its individual character, its 
record, and its resources. 1 

1 The Jewish house of the Rothschilds is probably the 
most shining example of what financial genius can ac- 
complish, when joined with integrity and favored by 
fortune. 

The house was founded by Mayer Anselm Bauer (born 



88 GIVING AND GETTING CREDIT. 

It is remarkable, that countries differing wide- 
ly in their social and economic conditions appear 
to use credit relatively to the balance of their 
trade. For example, Germany, Canada, and 
Siam contrast strongly ; yet it is believed that, in 
each, ninety per cent of the business is done 
upon credit. 

American Consuls reporting from Belgium, 
prosperous and progressive, and also from 
China, at the time prosperous but stationary, 
declare alike that eighty per cent of all trans- 
actions are based on credit. Somewhat vague 

1743) , who became a money-lender at the sign of the 
"Red Shield," (Rothschild) in Frankfort. When, in 
1806, the Elector of Hesse -Cassel had to flee before 
Napoleon, he entrusted five millions in silver to Roths- 
child, who buried it in his garden for a time, and eight 
years after repaid it with the most scrupulous fidelity. 
This was the groundwork of his prosperity. Mayer 
Anselm died in 1812, leaving five sons, who established 
branches in the chief financial centres of Europe, the 
brothers being equally interested. Nathan Mayer, who 
died in 1836, has been regarded as the financial genius 
of the family. 

Various estimates have been made of the wealth of 
this colossal house, which has been called "the seventh 
great power of Europe," but they must be largely con- 
jectural. It has, however, been prophesied, by men ex- 
perienced in large financial matters, that, before the 



POINTS ON GIVING CREDIT. 89 

consular estimates of the proportion of business 
done upon credit in France and Italy place it at 
sixty-five per cent of the total, while Holland 
leads the van as the most cash-paying nation in 
the world. 

As there is probably no country where credit 
is extended so freely, so public sentiment is more 
lenient in the United States, in regard to busi- 
ness failures, than in other countries, and in- 
stances of complete recovery are more numerous 
here. The British trader is more conservative 
than the American ; he neither gets rich, nor is 
ruined as quickly. 

close of the next century, the Rothschilds will be worth 
five thousand million dollars. It has always been the 
policy of the Rothschilds to build up rather than tear 
down, wherein they differ from some of our American 
financiers ; and in all the generations of the family not 
one member of it has brought a stain upon his character, 
either as regards his integrity or the purity of his life. 
When the widow of Mayer Anselm was upward of 
ninety years old, a brilliant fete was given in her honor. 
She was quite deaf, and could not hear ordinary con- 
versation, but she observed that those around her 
seemed anxious, and were talking earnestly. " What is 
it all about?" she inquired. "Bad news has come, and 
they are afraid we are going to have war, " was the re- 
ply. "Oh, there won't be any war," said the old lady, 
"for my sons shan't give the kings any money." 



90 GIVING AND GETTING CREDIT. 

Those among our retail traders who do a 
" high-class" business give more credit than do 
those who sell more cheaply to the masses. The 
middle classes pay best, and cash dealings be- 
come more general every year, yet the class of 
easy buyers and bad payers does not seem to 
diminish. As a nation, we rest under the impu- 
tation of giving little heed to economy. With 
the French, by way of contrast, the prevailing 
idea in every household is that of economy ; ex- 
travagance and excessive display being little 
known out of Paris. 



CHAPTER VI. 

COLLECTION. 

When the executor of a certain eccentric 
physician's estate came to overhaul his books, he 
found, under numerous long-winded accounts, 
the words, " Paid by God," contracted sometimes 
into "Paid B. G." Being a pious man, he was 
much shocked; until he discovered that there 
were no corresponding entries in the cash-book, 
and that, instead of being used profanely, the 
words signified merely that the debt had been 
absolved, or wiped out, by the divine hand, in 
the death of the debtor. We seldom hear of a 
man who is willing to die to pay his debts, but 
there are many who are quite willing to live 
peacefully on and not pay. And it is this class 
which we come now to consider. 

Next to being known as free and liberal in 

granting credits, nothing tends more to promote 

losses by bad debts, and to saddle undesirable 
91 



92 GIVING AND GETTING CREDIT. 

customers upon a house, than the reputation of 
being lax and easy-going in collecting its dues. 
As a rule, that concern, whether it deals at 
wholesale or retail, which enforces prompt pay- 
ments, is more respected, and loses little if any 
good trade by it. 

There are of course times and cases when it is 
humane and expedient to show forbearance to a 
dilatory debtor ; but the slipshod account which 
is perpetually in arrears, and can never be 
brought to a balance, merits little consideration, 
and is a good one to throw overboard. It is 
customers of this kind who avoid the patient 
and confiding house they owe, and sneak into 
rival establishments with their ready money, 
in order to obtain cash discounts upon their 
purchases. 

A New York merchant insists that a concern 
may make more money, and prove a better 
credit risk in the long run, if its capital is scant, 
or barely sufficient, than if it be superabundant. 
And, he adds, that many who began rich, and 
are now poor, would now be rich if they had 
been poor at the start. His reason is, that the 
house which must have its money to meet en- 



COLLECTION. 93 

gagements will be more active, will discriminate 
more cautiously in its credits, and will not per- 
mit overdue accounts to accumulate, which, like 
eggs, are apt to become addled with the lapse of 
time. 

In historic times the debtor was at the mercy 
of his creditor. The ancient Romans cut the in- 
solvent into pieces, and distributed them among 
his creditors ; and, not so very long ago, the Eng- 
lish clapped their helpless debtors into jail, and 
kept them there until they paid — or died. But 
the pendulum has swung, and, under the pres- 
ent condition of our laws, the creditor is practi- 
cally at the mercy of his debtor. 

The American people are, in many respects, 
prodigious sufferers from that uncertainty of the 
law which Burke called the " essence of tyran- 
ny." The nation is commercially one, but the 
relations of creditor and debtor, under the laws 
of the different States, vary essentially touch- 
ing the rights and remedies of the one, and the 
duties and liabilities of the other; and they are, 
moreover, constantly changing. 

The result is, that many times the too confid- 
ing or unwary creditor finds himself unex- 



94 GIVING AND GETTING CKEDIT. 

pectedly confronted with homestead, exemption, 
preferential, insolvent, or other sectional laws, 
which favor the debtor to such an extent as 
practically to frustrate all attempts at collection. 
So long as debts rest upon a legal basis, how- 
ever slippery, uncertain, or inequitable that may 
be, there will be faithless debtors who recognize 
only their legal obligations. If the creditor 
appeals to the law, and such debtor can evade 
payment under the law, he will do so without 
scruple. 

It has more than once been urged that laws 
for enforcing payment should be abolished, and 
that credit obligations should rest solely upon 
honor. Decent men everywhere regard their 
word of honor as inviolable, and a debt of honor 
as more binding than a legal claim. 1 

Probably such an innovation would quicken 
the public and private sense of honor and in- 

1 Charles Fox, the English statesman, an inveterate 
gambler, had long owed a considerable sum to a trades- 
man, who came upon him one day while he was count- 
ing a pile of money. "Now that you are so rich," said 
he, "you will surely take up your bill." "I can't," re- 
plied Fox, "this must all go to pay debts of honor." 
"And what is a debt of honor?" asked the creditor. "It 



COLLECTION. 95 

tegrity, and credit would more generally be 
founded on character. Public opinion would 
then brand the fraudulent or faithless debtor, 
and cast him out as unworthy of credit. 

Many years ago, one of the most respected and 
prominent merchants of New York declared 
that, during the thirty most active years of his 
experience and observation, more money had 
been expended in lawsuits (if the value of time 
be included), than had been recovered by the 
aid of collection laws. He had sold merchan- 
dise upon credit to the value of many millions, 
aiming always to deal with those who esteemed 

is an obligation which rests solely upon my word," said 
Fox. " Now, " said the tradesman, tearing the bill to 
pieces, "mine is a debt of honor too." "Then I must 
pay it," said Fox, and he did. 

Consul-General Strother, writing from Mexico, says 
the "proverbial Spanish sense of honor" prevails there 
in regard to debts. Credit is more freely given and less 
frequently abused, as a rule, than in more enterprising 
and speculative communities ; and if there is bad faith 
in a failure, it is almost impossible for the bankrupt to 
recover his position. 

Many instances of the effect of this sentiment can be 
found nearer home. For example : where States have 
enacted that debts for spirituous liquors should not be 
collectible at law, payments, as a rule, have been 
prompt and satisfactory. 



96 GIVING AND GETTING CEEDIT. 

character more than money, and making it the 
rule to credit none to a greater extent than he 
would had there been no law. His defaulted 
claims he had always collected, or compromised, 
without a suit. 

But laws to enforce collections will never be 
rescinded so long as the innocent need protection 
from the guilty and designing. The matter 
is only referred to here in order to bring out 
more clearly the fact, that the majority of men 
pay their debts from quite other reasons than 
because they can be legally compelled. 

The sense of moral obligation is even a 
stronger motive with great numbers of people 
than the sentiment of honor. Some unseen 
force makes the grass grow, and the stars shine, 
and whatever form of creed men hold, all feel 
that they are expected to do right, and generally 
admit that somehow, and somewhere, they must 
account to the Intelligence behind that force if 
they do wrong. They know also that false 
promises and broken engagements are not right. 

There are other potent influences or springs 
of action, such, for instance, as policy, pride, 
or friendship, which move honest men to fulfil 



COLLECTION. 97 

their obligations, when they are not provoked 
into obstinacy by reproaches and threats. All 
these facts lead up to the proposition that many 
tedious and expensive lawsuits and losses might 
have been avoided, had the fumbling creditor 
better understood the characteristics of his debt- 
or, and wrought upon them with ingenuity and 
patience. 

In cases of fraudulent default, the creditor's 
expedients are limited to out-manceuvering the 
juggling debtor by some swift master-stroke, 
such, perhaps, as recovering the goods by re- 
plevin, or to those legal proceedings which the 
circumstances warrant. Threats are sometimes, 
but not often, effective ; the sharp knave regards 
them as the letting off of steam which is a sign 
that the vessel is not yet going to sea. If 
menace is used, that is most effective which lies 
in the firmness, not the irritation, of speech. 
When legal measures are once decided upon, 
they should be prompt and resolute. 

It is the custom, with some concerns, to accept 
the first offer of a bankrupt in full discharge 
of his obligations, unless fraud is suspected, 
and, in many cases, this is certainly judicious 



98 GIVING AND GETTING CREDIT. 

policy. Legal measures involve the expense of 
lawyers, tedious delays, the loss of time — and 
perhaps temper — in attending trial, anxiety, and 
the chances of final defeat. If in the end suc- 
cessful, it is quite often found that acceptance 
of the original offer would have been more 
economical. 

And again, it is easy to believe that a feeling 
of relief may come to the broken trader, after 
the shock is over which the announcement of 
his failure has caused. The crisis is past, anx- 
iety over ways and means to meet maturing 
obligations is at an end; he feels more cheer- 
ful, and his mind naturally reacts toward a hope- 
ful view of his position. As yet, he has talked 
chiefly with friends and sympathizers, and is 
without a full foresight of the difficulties which 
probably await him. His first offer is,therefore, 
likely to be his best. 

Creditors are not necessarily harsh and per- 
verse. On the contrary, all are themselves 
debtors, and the majority will probably express 
sympathy, and give words of encouragement to 
the unfortunate dealer. But there are generally 
some who must frown and scold, and the man 



COLLECTION". 99 

in difficulties is almost certain to encounter in- 
difference and censure, and perhaps even im- 
putations upon his integrity, whatever the cir- 
cumstances of the case. Unexpected obstacles 
and shrinkages confront him, promised remit- 
tances are delayed, his business falls to pieces. 
At length he becomes despondent, or exasper- 
ated, and modifies his first offer. 

A few mercantile houses have made it an in- 
flexible rule — never to compromise with a delin- 
quent debtor, but to reduce all overdue accounts 
to judgments, and hold them for a hundred 
cents on the dollar, with interest. This seems 
a pitiless rule of action, to which no compas- 
sionate creditor could long adhere, because it 
does not discriminate in its treatment of an 
honest, but unfortunate man, and a fraudulent 
knave. Nor, aside from its inhumanity, does 
the success of its results, so far as can be learned, 
recommend it as a gainful course. 

The concern which adopts this principle 
toward its debtors may be known and avoided 
by the fraudulent, but others also are deterred 
from dealing with it. It becomes unpopular 
with the trade. People have no liking for such 



100 GIVING AND GETTING CREDIT. 

a house. As it does not give, neither does it re- 
ceive good-will. The influence of the debtor 
and his friends is forever against it. As a co- 
creditor, its selfish policy often retards or de- 
feats the settlement which other creditors desire, 
and provokes them to resentment. And, for all 
this, such a concern receives no compensation 
beyond the mere gratification of a vindictive 
feeling, because it appears to get no better re- 
turns in the end than the more lenient creditor. 

There is hope of a debtor who has exceptional 
business ability, with character, youth, health, 
and energy, or of one who has expectations of 
inheritance, or wealthy relatives who will stand 
by him. But chances of payment are too re- 
mote for a judgment against the ordinary bank- 
rupt trader to be a very valuable asset, espe- 
cially if he is heavily in debt. If, however, he 
can manage to compromise with the larger credi- 
tors, he sometimes pays the smaller ones in full, 
in order to be able to use his name. 

When John Doe finds, after his failure, that 
he can neither compound nor secure a legal 
discharge, he frequently continues on "under 
cover." He puts up the name of his wife, or 



COLLECTION. 101 

perhaps a friend buys in the old stock and fix- 
tures for him at a bargain, and he conducts the 
business under the style of the " John Doe Com- 
pany." He thus places himself out of the reach 
of his creditors, and claims against him are 
worthless. There is, to be sure, a chance that 
he may prosper, and quietly buy them up after 
a few years, as he can make terms. But, as a 
rule, concerns do not prosper under borrowed 
plumes ; they find it almost impossible to regain 
the confidence of the mercantile community and 
a respectable credit, and have all they can do 
to keep along without paying old debts. 

Practical experience suggests that the creditor 
should verify the statements of the defaulting 
debtor, and possess himself of all the facts of 
the case before he accepts offers of settlement. 
"My estate is naught, it is naught," saith the 
fraudulent bankrupt ; but, after he hath settled 
for a few cents on the dollar, he goeth his way, 
boasting of the relative who will lend him 
moneys to start afresh. It is not well for the 
business world that such debtors get off too 
easily. 

It does not seem desirable, then, that a progres- 



102 GIVING AND GETTING CKEDIT. 

sive merchant should apply any arbitrary rule of 
final action to all his insolvent debtors alike. 
Invariable harshness and obstinacy is neither 
just nor politic, while invariable leniency may 
pay a premium to fraud and incompetence. 
Circumstances vary in each case, and each 
should therefore stand upon its own special 
moral and legal equities and expediencies. 

It is the principal creditors — the " pall bearers" 
— who are most interested to investigate the cir- 
cumstances of a failure, and most anxious to 
reach the best and quickest results. Their ac- 
tion and recommendation, therefore, usually set 
the pace for the smaller creditors, if there be no 
suspicion that they are attempting to secure 
some advantage, whereby they can gobble up 
all the assets. In compromising claims, a quite 
common basis of settlement is 33-J per cent of 
the amount due. 

Not infrequently, a large creditor keeps in the 
background, and as much as possible conceals 
his loss, lest it may damage his reputation and 
impair his credit. Many small creditors give 
their claims little or no attention, preferring to 
charge the account off, rather than expend time 



COLLECTION. 103 

and money in following it up. The sluggish in- 
difference and inaction of small creditors is one 
of the most perplexing obstacles in the way of 
speedy settlement of a broken trader's affairs. 
English bankrupt-law officials complain of this 
same inertia, and it has also proved a retarding 
factor under our own insolvent and bankrupt- 
law proceedings. 

The merchant, who has a claim for collection 
at some distant point, takes a leap in the dark 
if he entrusts it to a lawyer located there, with- 
out some certain knowledge of his character and 
responsibility. Complaints are constantly made 
of mismanagement and bad faith, in the conduct 
of such cases, on the part of unprincipled attor- 
neys, and also of their exorbitant charges. 
Some of these gentlemen, learned in the law, 
are prone to look upon the sum total of a claim 
placed in their hands as all too small to bear 
dividing, and they, therefore, calmly bolt the 
whole of it, knowing that the far-away credi- 
tor is practically helpless. 

The relations between the practising attorney 
in a town, especially a small town, and the 
party to be collected from, are often so friendly 



104 GIVING AND GETTING CEEDIT. 

as to prevent the former from pushing a claim 
vigorously which comes to him from a remote 
and unknown source. The lawyer's interests 
are largely local, and his expectations of support 
and advancement rest more upon the esteem 
and good-will of his townsmen and neighbors 
than upon the cold a pprobation of strangers 
whom he has never seen, and may never see or 
hear of again. It is only reasonable, therefore, 
to expect, that in many cases the interests of a 
friend and fellow-citizen will be favored and 
promoted, at the expense of a personally un- 
known client ; and the experience of merchants 
bears out this expectation. 

It is a better plan, if claims for collection are 
not given to one's own trusted attorney, to place 
them in the hands of a responsible Collection 
Agency. This generally involves no cost to the 
creditor, further than a small docket fee, unless 
the claim is collected, in which case ten per 
cent of the same is retained. Special terms 
are made upon large claims. 

If legal proceedings are found necessary to 
compel payment, the creditor is required to ad- 
vance the sum which will be needed for disburse- 






COLLECTION. 105 

ments in the suit, some portion or all of which 
may be returned to him, if it results success- 
fully. 

Some of the leading Mercantile Agencies take 
charge of the interests of creditors in cases of 
insolvency, and do also an extensive general col- 
lection business. They are especially qualified 
to perform such services advantageously, be- 
cause of having active and experienced repre- 
sentatives at all points. These deputies, or sub- 
agents, obtain personal interviews, and often 
bring out facts and explanations which ward off 
lawsuits, restore harmony, and secure prompt 
payment. Like David Crockett's coon, the re- 
fractory debtor is willing to come down without 
waiting to be fired at. 



CHAPTER VII. 

CORPORATIONS. 

A corporation is created by the law, upon 
the general principle that the resources of many 
may, with advantage, be combined for certain 
specific purposes, under one flexible manage- 
ment. 1 

The advantages of a corporation over a part- 
nership are that, while it may buy and sell, sue 
and be sued, and conduct its proper business 
like an individual, its shareholders are under no 
obligation to pay its debts. They are liable 
only to a certain extent, which varies according 
to the laws of the State from which its charter, 
or franchise, is derived. New York laws, for 
example, are considered as among the best for 

1 Chief Baron Manwood, an English jurist, was the 
author of the famous syllogism : " None can create souls 
but God : corporations are created by the King ; there- 
fore a corporation can have no soul. " This is perhaps 
the reason why stock companies have so little sense of 
moral responsibility. 

106 



CORPORATIONS. 107 

the creditor, and those of West Virginia as 
among the most "liberal," or poorest for the 
creditor. 

The corporation idea is not new ; it was put 
in practice by the ancient Romans, and, along 
down the centuries, corporations have superseded 
ordinary partnerships in commercial enterprises 
which were extra hazardous, or which required 
large capital. Chancellor Kent declared, in 
1820, that the growth of joint stock companies 
in New York was "astonishing," and in 1821 
the State tried in vain to check their formation. 1 

1 The tendency to multiply corporations has, however, 
never been as great as just prior to the panic of 1893. 
The number of certificates of incorporation for the for- 
mation of stock corporations filed in the office of the 
Secretary of State at Albany, from January 1, 1893, to 
June 1, 1893, was 689. This is the largest number of 
stock corporations organized during any five months in 
the history of the office. During the corresponding 
period in 1892, only 479 were formed, the increase in 
1893 being more than 44 per cent. 

New York passed its first law for the taxation of cor- 
porate capital and earnings in 1880 ; this law was crude 
and unsatisfactory, and in 1885 it was amended. A 
very considerable revenue is now derived from this 
source, although it is claimed that the larger proportion 
of what is actually due still fails to reach the State 
treasury. 



108 GIVING AND GETTING CREDIT. 

In 1844, joint stock companies, with a few 
exceptions, were for the first time, in England, 
enabled to incorporate under a general law, that 
is, without applying for a special charter. 1 But 
members of these companies were still respon- 
sible for the debts to the whole extent of their 
fortunes. In 1855, limited liability was intro- 
duced ; but companies with this privilege must 
use the word "Limited" after their names. It 
was said, in 1890, that one-third, at least, of 
English commerce was in the hands of incorpo- 
rated companies. 

Many corporations have been formed in this 
country for all sorts of purposes permitted by 
law, and in various fashions. A common plan 
has, in times past, been substantially as follows : 
an inventor, for example, with his associates, 
organized a corporation, to which he transferred 
the rights to his invention, receiving as pay- 
ment therefor all the shares of the company. 
The stock was, by this process, accounted " full- 
paid stock, " and the holders were supposed to be 

1 The objects of certain companies, as for example, 
railways, involve an interference with private rights 
which requires special and direct charter, or authority, 
from the Government. 



COKPOKATIONS. 109 

exempt from liability for debts of the company. 
The inventor's associates then bought from him 
a part of the stock at prices before agreed upon ; 
the purchase-money, or a part of it, was placed 
in the "treasury" for a "working capital," and 
the company was ready for business. This was 
also a favorite method in working mining 
schemes. Thousands of companies organized 
after this fashion have lived and died — most of 
them have died. 

But while, in the absence of statutory restric- 
tions, a corporation may have power to receive 
payment, otherwise than in money, for a sub- 
scription to its capital stock, it has been held 
that stockholders are liable to creditors for the 
difference between the reasonable value of the 
property transferred and the par value of the 
stock. 

The New York Statutes, of 1892, impose a lia- 
bility upon stockholders " for every debt of the 
corporation, to an amount equal to the amount 
of the stock held by them respectively, until the 
whole amount of its capital stock, issued and 
outstanding at the time such debt was incurred, 
shall have been fully paid." 






110 GIVING AND GETTING CREDIT. 

The members of an unincorporated company- 
are liable individually for all its debts, no matter 
what agreement they make among themselves. 
But there is no personal liability attached to 
membership of churches, lodges, clubs, etc. 

If persons organize under a general law for a 
purpose prohibited, or not authorized, by it, or 
if they fail to comply with its requirements in 
any material point, or if the statute under which 
incorporation is claimed be unconstitutional, the 
stockholders are liable as partners. 

A more recent development is known as the 
"Industrial" corporation, which is based upon 
the grocery, brewery, or dry-goods store, etc. 
Among the reasons usually given for its for- 
mation are, that the proprietors are growing old, 
and they wish to place the business upon such 
footing that, while they remain interested ad- 
visers, they can be relieved of administrative 
labors and responsibilities, and, in the event of 
their death, the business may be continued 
without interruption or embarrassment. Or 
again, it is professedly done to give faithful and 
deserving employees an interest in the business. 
Some of these corporations are organized upon 



CORPORATION'S. Ill 

a substantial and equitable basis, and are justly 
entitled to confidence and credit. 

But the industrial corporation too often re- 
presents a worn-out plant, and a waning " good- 
will," and the business, in a large proportion 
of cases, is found to be capitalized largely in ex- 
cess of its actual value. If earnings are all paid 
out in dividends, as has been frequently the case, 
the rich shareholder is reluctant to risk advan- 
cing from his private means for the benefit of 
poorer ones when a pinch comes, and banks do 
not, as a rule, take kindly to the paper of such 
concerns without a good indorser. 

A " trust" is formed by placing a majority of 
the shares of each corporation which it embraces 
in the control of persons called "trustees." 
These agree to vote upon the stock so held for 
the perpetuation of the trust during the time 
agreed upon ; to elect officers in each corporation 
as provided for by law, and generally to direct 
the business of all. Unity of purpose and action 
is thus secured in the management of vast and 
widely distributed properties. 1 

1 The Standard Oil Trust was organized in 1882, and 
the Cotton Seed Oil Trust in 1884. There are now trusts 



112 GIVING AND GETTING CREDIT. 

The " trust" was, three or four years ago, de- 
scribed as a "colossal, gigantic partnership, 
having no corporate function, owing no cor- 
porate allegiance, and capable of an elastic and 
irresponsible increase of capital stock. It may 
be a combination of corporations as well as of 
individuals, or firms, and its limits are bound- 
less. It may embrace a hundred corporations, 
or any number more, chartered under the di- 
verse laws of forty different States ; with Hive 
hundred, or fiYe thousand shareholders in each 
corporation, and each corporation may be char- 
tered to carry on a certain business, different 
from either of the others. Trusts are now 
usually incorporated. 1 

in a great variety of articles, from cradles to whisky 
and coffins. It has been said that the American citizen 
has now to deal with trusts from the cradle to the grave. 

1 Trusts have, in some cases, succeeded in obtaining 
special State charters, granting certain advantages in 
the matter of taxation. The firms and corporations 
which combine to organize them turn over their prop- 
erty to the new corporation, receiving what they deem 
an equivalent in its stock. 

If one of these great companies wishes to be listed at 
the Exchange, some promoters and stock operators are 
likely to be joined in the management, and its stock 
soon becomes a football of speculation. Sometimes the 



CORPORATIONS. 113 

Some of these great concerns may be " good" 
from the creditor's standpoint, but if their ob- 
ject be to monopolize business, by crushing out 
their competitors, they surely do not conduce to 
the " goodness" of others. An individual act, 
or circumstance, which is not important of it- 
self, acquires strength, and may become illegal, 
when many combine to give it force. Union 
and concert invest it with effect against the 
public welfare. 1 

Those who oppose trusts aver that they are 
of the nature of conspiracies to enforce private 
interests, by combined action, regardless of the 

practical men are gradually crowded out of the board 
to make room for more stock-jobbers. The original in- 
corporators cannot recover control of their property, un- 
less through a receiver. Profits shrink and expenses 
increase. Some of the assets are converted, in order to 
keep up the payment of dividends, and at length an 
issue of bonds is made. In short, the company is 
plundered, until, when the crash comes, little or nothing 
is left. 

1 Chief Justice Gibson, of Philadelphia, held in 1821, 
that "A combination is criminal whenever the act to 
be done has a necessary tendency to prejudice the 
public, or to oppress individuals, by subjecting them to 
the power of the confederates, and giving effect to the 
purposes of the latter, whether of extortion or of mis- 
chief." 



114 GIVING AND GETTING CREDIT. 

rights of others. That they oppose honest and 
healthful competition, which seeks to merit suc- 
cess, with a ruthless rivalry, eager only to ob- 
tain it. 1 That they violate the spirit and 
menace the existence of republican institu- 
tions; are in restraint of trade, and against 
public policy. 

President Cleveland said, in his last inaugural 
address: "The existence of immense aggrega- 
tions of kindred enterprises, and combinations 
of business interests, formed for the purpose of 
limiting production and fixing prices, is incon- 
sistent with the fair field which ought to be open 
to every independent activity. . . . They fre- 
quently constitute conspiracies against the in- 
terests of the people, and in all their phases 
they are unnatural and opposed to our American 
sense of fairness." 

High State courts have, in recent years, re- 
peatedly declared trusts illegal upon various 
grounds. Among other reasons it is held, that 



1 "A competitor strives to surpass by honest means ; 
he cannot succeed so well by any other ; a rival is not 
bound by any principle ; he seeks to supplant by what- 
ever means seem to promise success. " — Crabbe. 



CORPORATIONS. 115 

the corporations which they embrace are vested 
by the chartering States with certain powers 
and privileges, on condition that they shall be 
used in subservience to the public welfare, and 
that their functions can neither be abdicated 
nor delegated. 

The text of the Sherman An ti- Trust Law is 
as follows : 
" An Act to protect trade and commerce 

AGAINST UNLAWFUL RESTRAINTS AND MON- 
OPOLISTS. 

" Be it enacted by the Senate and House of 
Representatives of the United States of Amer- 
ica, in Congress assembled: 

" Sec. I. Every contract, combination in the 
form of trust, or otherwise, or conspiracy in re- 
straint of trade or commerce among the several 
States, or with foreign nations, is hereby de- 
clared to be illegal. 

" Sec. II. Every person who shall monopo- 
lize, or attempt to monopolize, or combine, or 
conspire, with any other person, or persons, to 
monopolize any part of the trade or commerce 
among the several States, or with foreign na- 
tions, shall be deemed guilty of a misdemeanor, 



116 GIVING AND GETTING CREDrf. 

and, on conviction thereof, shall be punished by 
a fine not exceeding $5,000, or by imprisonment 
not exceeding one year, or by both said punish- 
ments, in the discretion of the court. 

"Sec. III. Every contract, combination in 
the form of trust or otherwise, or conspiracy in 
restraint of trade or commerce in any Territory 
of the United States, or the District of Colum- 
bia, is hereby declared illegal. 

" Sec. IV. The several Circuit Courts of the 
United States are hereby invested with juris- 
diction to prevent and restrain violations of this 

act, AND IT SHALL BE THE DUTY OF THE 

several district-attorneys of the united 
States, in their respective districts, under 
the direction of the attorney-general, 
to institute proceedings in equity to pre- 
vent and restrain such violations. 

"Approved July 2d, 1890." ' 

It has hitherto been found difficult to sup- 
press trusts; they still flourish and multiply, 
defying public sentiment, and managing to 
evade legal restrictions. Many fear that, as 

1 It is found that this enactment possesses very little 
restraining power. 



CORPORATIONS. 117 

they continue to increase, they will absolutely 
stifle competition in their respective fields, and, 
with the patronage and vast resources at their 
disposal, combine to influence such legislation 
as will give them a freer scope and a firmer seat 
in the saddle. 

It is contended, on the other hand, that com- 
bination must in some way replace competition 
in the sphere of production; that great organi- 
zations are in keeping with the progressive 
spirit of the age ; that numerous desirable results 
for the public benefit can only be achieved by 
uniting the resources of many, and that we have 
reached an era of development at which large 
consolidations of capital and ownerships are 
natural and necessary to social economics and 
advancement. It is also pointed out to us, that 
the free employment of organized association has 
favorably affected every social interest in Ameri- 
can history, and that wherever there is most in- 
telligence, and the best administration of affairs, 
there is the most corporate life and activity. 

It will not be denied that there are many cor- 
porations honestly organized, and admirably 
conducted, which illustrate the best principles 



118 GIVING AND GETTING CBEDIT. 

of corporate association, and show that they are 
beneficent when not perverted; but a wide- 
spread feeling or conviction also exists, that the 
arrogant and accumulating abuses of the cor- 
porate franchise should be rebuked, and sup- 
pressed. 

In glancing over the legion of companies in- 
corporated under our facile laws during the last 
twenty-five or thirty years, it may be noted that 
comparatively few of them have been capitalized 
at less than a hundred thousand dollars, and that 
a very large proportion have been based upon 
schemes of dreamers and swindlers, which have 
swallowed up all that has -been put into them. 
Few have had an actual capital of the amount 
stated in their articles of .incorporation, and it is 
unnecessary to say that the majority of them 
have utterly perished. 

Special caution should be observed in extend- 
ing credit to a company which puts forth its 
best ability to dispose of its stock; 

To a company whose officers will make no de- 
tailed statement of its affairs ; 

To a company which gives notes, and has a 
large indebtedness to stockholders; 



CORPORATIONS. 119 

To a " parent" company, or a company being 
" promoted ;" 

To a "sub" company, on which the parent 
company holds a large portion of the stock, and 
exacts a royalty ; 

To an industrial company with a bonded in- 
debtedness. 

The creditor will remember that he contracts 
with the corporation, and not with its members, 
however high their standing and responsibility. 



CHAPTER VIII. 

THE MERCANTILE AGENCY SYSTEM. 

Sixty years ago, we had no railroads or tele- 
graphs, and only a few small steamboats plying 
on inland waters. There was no ocean steam 
navigation, for it was not until 1838 that the 
Sirius and Great Western made their first 
regular passages, across the Atlantic. The great 
West was sparsely settled, and the total popula- 
tion of the United States was but 13,000,000. 

It has since increased to about 70,000,000, or 
more than five-fold, while the volume of busi- 
ness has expanded several times five-fold. Peo- 
ple then had fewer wants. They lived frugally, 
and produced for themselves many articles 
which are now made exclusively by machinery. 
There were fewer great fortunes, and less ex- 
treme poverty; and there was also less fraud 
and commercial knavery. 

Yet, even in those ancient days, the lack of 
120 



THE MERCANTILE AGENCY SYSTEM. 121 

any convenient method for investigating the 
character and responsibility of traders began to 
be seriously felt. Inquiries by letter were slow 
and unsatisfactory, and some of the larger 
houses employed travelling agents to visit their 
customers, and report upon their condition and 
home standing. But the information thus ob- 
tained was costly, exclusive, and temporary. 

Many relied upon the references given them 
by those who applied for credit. But it some- 
times happened that houses thus referred to 
looked with a jealous eye on the efforts of rival 
concerns to share the trade of good customers, 
or, on the other hand, might recommend the 
extension of credit to a doubtful debtor, in order 
to increase the probability of collecting their 
own claims against him. In any case, there 
was no certainty that the information thus re- 
ceived would be disinterested and truthful. 

After the great financial troubles of 1837, 
which swept so many business men into bank- 
ruptcy, credits were much restricted, for mer- 
chants were all at sea in regard to the condition 
of traders throughout the country. But, with 
the slow reorganization of affairs, the need of 



122 GIVING AND GETTING CREDIT. 

some system for obtaining information became 
pressing, and, in 1841, " The Mercantile Agency" 
was put into operation in New York city. 

It is said that the original nucleus was a book 
kept by the then prominent house of Tappan & 
Co., in which, for some years, had been regis- 
tered all the information obtained respecting 
its customers. However this may be, both 
the brothers, Louis and Arthur Tappan, were 
identified with the organization in its early 
days. 

The business of the agency was at first 
limited; but in 1846 Mr. Benjamin Douglass 
was admitted to a partnership with Louis Tap- 
pan, under the style of Tappan & Douglass, and 
he at once assumed the chief management and 
extended its operations. In 1854, Mr. Douglass 
succeeded to the business, and the style of B. 
Douglass & Co. was adopted, with the admis- 
sion of Mr. Robert Graham Dun. 

"The Mercantile Agency" now made rapid 
and substantial progress, and soon gained a re- 
cognized and assured position among the useful 
and necessary mercantile institutions of the 
country. In 1860 Mr. Douglass withdrew, and 



THE MERCANTILE AGENCY SYSTEM. 123 

ever since that time Mr. Dun's name has re- 
mained at the head of the agency. 

A number of agencies, more or less extensive, 
have been founded for furnishing reports since 
" The Mercantile Agency" began its operations. 
Many merchants will recollect those of W. A. 
Cleveland & Co., Woodward & Dusenberry, 
Potter & Gray, McKillop & Sprague, Brad- 
street & Son, etc. The latter firm, founded 
somewhere along in the fifties, was, a few years 
ago, merged into "The Bradstreet Co.," which 
is now a popular and flourishing concern, with 
many friends and a large number of subscrib- 
ers. There are others whose reports are con- 
fined to a single line of trade, or are merely 
local, and others still which furnish their 
patrons with a list of persons, mostly lawyers, 
in different localities, who answer inquiries by 
letter. 

European Commercial Agencies are con- 
ducted on a different plan, and the service they 
render their home patrons would hardly satisfy 
American merchants. The principal one in 
Great Britain is probably that of Stubbs & Co., 
of London. There are also several on the Con- 



124 GIVING AND GETTING CKEDIT. 

tinent. South of the equator a few small offices, 
or bureaus, exist for obtaining and dispensing 
commercial information, as, for example, the 
"Prudencia," of Buenos Ayres. 

It is the purpose of the writer merely to glance 
briefly at the origin, operation, and economic 
principles of a system. If special reference is 
made to "The Mercantile Agency" of R. G. 
Dun & Co., it is because that was the pioneer 
institution of the kind. It has seemed fittest 
for the purpose of illustration, and we will there- 
fore follow its development. 

"The Mercantile Agency" early discovered 
that the demand for information was not con- 
fined to New York, but existed also in other 
trade centres, in proportion to their extended 
wholesale traffic. And as the vast labor of re- 
porting all the business men of the country could 
not well be performed by a single office, or its 
expense borne by the merchants of one city, a 
system of auxiliary branch offices was gradually 
extended to other points in the United States 
and Canada, dealers at those places speedily be- 
coming their patrons and supporters. 

"The Mercantile Agency" has now upward 



THE MERCANTILE AGENCY SYSTEM. 125 

of one hundred and fifty branch offices, and it 
continues to establish them wherever the growth 
of business gives warrant of their usefulness. 

Each of these branch offices has its special 
district, or field of operations, and its manager 
is responsible for the accuracy and completeness 
of the reports from that district. 

There is a constant interchange of informa- 
tion between them, through the main office in 
New York. Each has also its subscribers, to 
whom it supplies the books of ratings, the 
weekly "Notification Sheets" of changes and 
events, and such special reports as may be re- 
quired. It may also issue circular letters to its 
subscribers, without extra charge, which enable 
commercial travellers to obtain reports at any 
of its kindred offices in North America. 

One might suppose that to be prepared to 

furnish instant and accurate information as 

to the character and responsibility of any and 

every business man on the continent, from Nova 

Scotia to the Pacific, or the remotest cross-roads 

of Texas, would furnish scope and swing enough 

for the most boundless energy. But not so, 

thought the proprietors of "The Mercantile 
9 



126 GIVING AND GETTING CREDIT. 

Agency." They have also extended their sys- 
tem of branch offices to the larger cities of 
Europe and Australia, and developed for their 
patrons reliable sources of information through- 
out the civilized world. They can furnish re- 
ports upon a Parsee banker of Bombay, a tea 
merchant of China, Formosa, or Japan, a spice 
dealer of Sumatra, or a trader of San Luis 
Potosi. 

The representatives, or " reporters, " who ob- 
tain most of the information for a first-class 
Mercantile Agency, are chosen with great care. 
They must be men of character, integrity, and 
experience ; of good judgment and habits, free 
from prejudice, and naturally fitted for the 
duties they have to perform. These are often 
arduous, and always responsible ; and they are 
apt to be pleasant or otherwise as the parties 
with whom they come in contact are intelligent 
or ignorant. 

In the larger cities, a certain line of trade is 
generally assigned exclusively to the care of a 
" reporter" and his assistants. In time he be- 
comes acquainted with every dealer in his line 
in his district. He knows the best-informed 






THE MERCANTILE AGENCY SYSTEM. 127 

merchants and arbiters of credit in the larger 
houses, and exchanges information with them. 
He interviews bank presidents and cashiers, 
watches offices of record for transfers, mort- 
gages, and judgments. 

He acquaints himself with the abilities and 
characteristics of junior partners, managers, 
salesmen, and accountants, and has his own ideas 
of who among them is fitted, or fitting himself, 
to enter successfully into business on his own 
account. A new concern in his line catches 
his attention instantly; in fact, it is probable 
that he knows all about its affairs before its s*ign 
is up. 

He enjoys the respect and friendship, and is 
often the confidential adviser, of many mer- 
chants in the line to which he is attached. 

Reporters and correspondents throughout the 
country are selected with equal care, and with 
due regard to their freedom from prejudice and 
partiality, which might bias their reports. As 
a check upon them, or by way of verification, 
travelling agents are sent to the various districts, 
who make independent investigations. In cases 
where the reports are greatly at variance, or 



128 GIVING AND GETTING CREDIT. 

where they differ strikingly from former reports, 
the discrepancy is looked into by a third per- 
son. The reports of a first-class agency should, 
of course, be truthful and explicit; they must 
also be frequently revised, and, last, but not 
least, promptly furnished. 

The excellence of an agency depends also 
largely on the universality of its reports. If it 
can furnish information on but one-half, or two- 
thirds, of the traders in a certain line, its value 
to a general dealer in that line is obviously 
limited. As it is, in fact, entrusted with the 
business of others, the nature of its service is 
that of a deputy or susbtitute, and the relations 
existing between it and its subscribers are closer 
than those between buyer and seller. They are 
largely mutual, and, in proportion as its hands 
are strengthened by its patrons, it can do more 
and better work for them. The greater their 
number, and the higher the compensation re- 
ceived, the more it can extend and improve the 
quality of its information for the benefit of all. 

Justice has been defined as the virtue which 
consists in giving every one his due ; and the 
steady and substantial growth of " The Mercan- 



THE MERCANTILE AGENCY SYSTEM. 129 

tile Agency" for fifty years bears witness that 
this must have been the cardinal principle of its 
proprietors. It has also demonstrated to the 
public that, for the object in view, no more sat- 
isfactory system has been, or perhaps can be de- 
vised, than that by which its operations are con- 
ducted. It has no motive to injure or misrepre- 
sent any one. On the contrary, the best inter- 
ests of an agency prompt it to get as near the 
truth as possible in every report, because the con- 
fidence of those upon whom its prosperity de- 
pends will surely be proportioned to the accu- 
racy of its information. 

Objection has sometimes been made that the 
system tends to create a sort of moneyed rank, 
or that it practically discriminates against men 
of small means, and in favor of the rich. But 
this is not true. A respectable mercantile 
agency refuses to become the arbiter or censor of 
any man's affairs. It simply records what it 
can find and verify. It deals in facts, rather 
than opinions; yet in its ratings and reports, 
reputation and character must be as carefully 
considered as mere ability to pay. And, 
furthermore, if wealth confers any distinction, 



130 GIVING AND GETTING CBEDIT. 

it is not in this country hereditary, and is acces- 
sible to all. Death brings division of property, 
and new financiers come to the front. 

Nor does the agency make public its written 
or printed information. It is communicated 
only to annual subscribers, specifically for use 
in their own business, " as an aid in determin- 
ing the propriety of giving credit," under the 
written pledge that it " shall be strictly confi- 
dential, and under no circumstances be com- 
municated to others." 

No intelligent man can expect another to en- 
trust him with his property without inquiry to 
ascertain if he is worthy of such confidence. If 
he is honest and responsible, he cheerfully in- 
vites it. If he objects to it, it is a reasonable 
inference that the result would be unfavorable 
to himself. 

He who asks for credit virtually challenges 
such investigation, and accords the seller the 
right to make it. Nor can this right be con- 
fined merely to the seller personally. Qui facit 
per alium facit per se; he may deputize his 
salesman, or his bookkeeper, or he may properly 
confide the troublesome and delicate service to 



THE MERCANTILE AGENCY SYSTEM. 131 

an organization which will perform it for him 
promptly, and at the least expense to himself. 

Probably the greatest usefulness of the mer- 
cantile-agency system consists in the protection 
it gives against incompetence and dishonesty. 
It traces absconding debtors wherever they may 
locate, exposes false and fraudulent representa- 
tions, and gives caution against the doubtful. 

If, for example, a trader in New York pre- 
meditates a fraudulent failure, he stretches 
his credit limit with his accustomed houses, and 
strives, right and left, to open new accounts. 
Requests for reports at once pour in upon the 
leading agencies, and an extraordinary number 
of inquiries concerning any person, or firm, 
signifies either distrust, or exceptional con- 
ditions of some kind, which call for prompt 
investigation. 

But the mercantile agency does far more than 
this. It places in the merchant's or manufac- 
turer's hands a complete list of the solvent buy- 
ers of the country, states their resources, gives 
their home reputation for ability, thrift, and 
integrity, and the promptness with which they 
meet their obligations, from the actual experi- 



132 GIVING AND GETTING CREDIT. 

ence of those from whom they buy. It is con- 
stantly on the alert to discover and apprise its 
patrons of changes which may affect their in- 
terests, and it prevents delay in the shipment of 
goods to any part of the country if the purchas- 
ers are responsible. 

The agency system is of vast benefit also to 
buyers in all parts of the land, for it expands 
far more than it restricts credit. It opens the 
entire markets of the country to every substan- 
tial and upright dealer, without regard to the 
locality of his business. The books and records 
of the agency are his best letters of introduction. 
He need not now, as formerly, be confined in 
his purchases to a few houses where he is per- 
sonally known. It tends also to protect him 
from the injurious competition of irresponsible 
and unprincipled traders, and in many other 
respects renders him essential service. 

Feeling that he and his affairs are observed 
and open to the scrutiny of the business world, 
the country merchant may naturally become 
more prudent and conservative in his dealings. 
It tends to check extravagance, restrains him 
from doubtful speculation, and promotes in him a 



THE MERCANTILE AGENCY SYSTEM. 133 

finer sense of the value of industry, and thrift, 
and of character, for he knows that the agency 
mirror will reflect what he is. If he finds 
that his credit suffers from his uncertain hab- 
its, his lack of economy, or of punctuality, he 
is driven to retrieve himself, and, like the 
wounded oyster, "mend his shell with pearl." 

The American mercantile agency system is 
unique; nothing comparable to it exists else- 
where, but it is a natural outgrowth of our pe- 
culiar needs and conditions. The great extent 
of the Republic ; its subdivision into numerous 
sovereign States with diverse laws; the freedom 
of interstate traffic; the rapid growth of the 
country ; the energy and enterprise of the Amer- 
ican people; their cosmopolitan and somewhat 
migratory characteristics; the general use of 
credit, and the absence of that governmental 
scrutiny of individuals which exists in many 
European countries, — all combine here to ren- 
der the institution indispensable. 

The mercantile agency of the future will prob- 
ably be conducted upon substantially the same 
methods as at present, unless essential changes 
occur in commercial conditions, which cannot 



134 GIVING AND GETTING CBEDIT. 

now be foreseen. It is, in fact, difficult to con- 
ceive of any general plan for gathering and dis- 
tributing the required information, which could 
be substituted with advantage for the one now 
operative. But it is believed that the institu- 
tion is progressive, and that it will continue to 
multiply checks on fraud, and in other respects 
further promote the interests of the mercantile 
community. 

Commerce goes hand in hand with intelli- 
gence. It pays the wages of science, and is the 
patron of art. It is fruitful of ideas, of systems, 
of railways, ships, telegraphs, cities, machines, 
manufactories, fabrics, houses, comforts, and 
conveniences. It is the nation's life-blood in 
circulation. Who shall deny it the right to 
claim all facilities for the extension and security 
of its operations? Commerce required the mer- 
cantile agency system for its protection — and it 
was created. It has grown with the growth of 
the country, and so* long as the credit system 
exists it will remain, for confidence is the 
foundation of credit, and knowledge is the 
cradle of confidence. 

It has now become interwoven with the trade 



THE MERCANTILE AGENCY SYSTEM. 135 

of the country, and is so generally leaned upon, 
that were it to be, from any cause, suddenly 
abolished, or its operations seriously curtailed, 
uncertainty, confusion, and distrust would 
come at once. Credits would shrink, and the 
distribution of merchandise be restricted. 



CHAPTER IX. 

CREDIT GUARANTEE OR INDEMNITY SYSTEMS. 

A novel and interesting system for indem- 
nifying business men against excess losses from 
bad debts was put into practical operation, about 
six years ago, by the United States Credit System 
Company, whose headquarters were in Newark, 
N. J. Since then, several organizations, con- 
ducted substantially upon the same plan, have 
entered the field as Credit Indemnity or Guar- 
antee Companies, some of which are still in ac- 
tive operation. 

Broadly stated, the principle upon which this 
system is based is, that in each line of business 
there is a certain specific average of losses on 
credit sales. Up to this point, the insuring 
merchant or manufacturer must himself take 
the risk ; but he may obtain a certificate of in- 
surance against further losses, within certain 
limits, by paying something like three or four 
136 



GUARANTEE OR INDEMNITY. 137 

per cent premium on whatever amount is 
covered by his certificate. He is, however, 
restrained from taking reckless risks, by the 
ratings and reports of the leading mercantile 
agencies, certain low grades of credits being 
exempted in the guarantee. 

The premium exacted has usually been a 
fixed one, in proportion to the amount of in- 
surance, the varying quantity being the stipu- 
lated percentage of loss which the insured must 
bear before his indemnity begins. This changes 
with the nature and extent of the business, it 
being higher for a small than a large concern. 

It is claimed that, while careful provision is 
made against fraud, there is no irksome espion- 
age upon the insured, nor is any meddlesome 
supervision or interference with their business 
necessary. The company is to be notified at 
once of excess losses, and upon due proof of the 
same they will be adjusted, and paid within a 
reasonable time. 

The new and ingenious feature of the plan lies 
in the fact that the interests of both parties jog 
on together until the insured reaches the stated 
limit of "average losses." To this point, the 



138 GIVING AND GETTING CREDIT. 

less the loss, the better for the merchant, and the 
farther off the insurer's risks. If not reached, 
the premium is all profit to the insuring com- 
pany, while the merchant has had the satisfac- 
tion of feeling protected against disastrous mer- 
cantile contingencies, as his insurance policy 
has protected him from loss by a possible fire. 

A company for guaranteeing credits, which 
operated on a seemingly more speculative and 
hazardous plan, was also organized in New 
York several years ago. This was simply to 
guarantee the payment of notes and accounts, on 
such terms as might be agreed upon in each 
case. But its offerings were chiefly doubtful 
or rejected risks, and but few which could be 
deemed reasonably safe. This company was 
unsuccessful, and soon withdrew from the busi- 
ness. 

There should be no more difficulty in ascer- 
taining the average losses in each kind of busi- 
ness, through an extended series of years, than 
there has been in acquiring a knowledge of the 
averages upon which all fire, marine, life, and 
accident insurance is based. And it would 
surely seem that, if equipped with the necessary 



GUARANTEE OR INDEMNITY. 139 

data, a well-ballasted company might as safely, 
as profitably, and as equitably, insure against 
credit losses as against losses by fire or ship- 
wreck. But there are some notable differences 
and perplexities to be considered. 

A necessary condition for the success and 
permanence of any insurance company is that 
the premium paid for insurance shall be remun- 
erative. It is from the premiums that the losses 
must be paid, or the business will soon perish. 
Fire, life, and marine insurance have generally 
proved profitable to their respective companies 
in all parts of the world. Losses in most kinds 
of insurance vary so little from year to year, 
that an adequate premium for an ensuing 
year might, with a watchful regard to current 
changes, be fairly predicated upon the experi- 
ence of several preceding years. 

Yet fire insurance, for example, is now so care- 
fully administered that the data, from which to 
establish the general premium rates, is not taken 
merely from the experience of any one company, 
but from the accumulated and combined experi- 
ence of all. Still, even these rates constantly 
fluctuate. It will be observed, that if a season's 



140 GIVING AND GETTING CREDIT. 

fires have been large and numerous, and losses 
unusually heavy, premiums are advanced all 
along the line. 

But credit insurance is subject to greater and 
more frequent vicissitudes. The movement 
of mercantile affairs in uncertain cycles of ele- 
vation and depression depends upon many cir- 
cumstances, which can neither be foreseen, nor 
guarded against, by the credit insurer. Panics 
seldom come on schedule time, but often sud- 
denly, and when least expected ; and the losses 
of a Credit Indemnity Company, in a year of 
panic and liquidation, may easily exceed the 
losses and sweep away the profits of several or- 
dinary years. 

It is evident, therefore, that the premium de- 
manded by such a company must be such as 
will cover varying degrees of mercantile pros- 
perity. It must be large enough for the com- 
pany to gain a reserve when trade prospers and 
losses are few, so that it may be in a position to 
meet the exigencies of a crisis which is liable 
to come at any time, and may not come for 
years. On the other hand, it must not be much 
above the actual risk incurred by prudent and 



GUARANTEE OR INDEMNITY. 141 

intelligent merchants, or they will decline to 
insure. 

The business of insuring credits could not be 
profitable in calamitous times, if the premium 
were based on average losses. A company in- 
suring credits upon this basis, during a season 
of panic, could only hope to find compensation 
for extraordinary losses through a continuation 
of business, at the same premium rate, when 
prosperity returns. 

But people insure against fire and wreck be- 
cause such casualties are so largely due to for- 
tuitous circumstances, which no ordinary exer- 
cise of wisdom can foresee or prevent. The 
credit losses of a mercantile concern depend less 
upon mere chance, and it has often been proved 
possible for experience, skill, and prudence to 
limit them to a very low figure. It therefore 
remains to be seen, whether the better class of 
merchants will continue to insure their credits 
freely, at a long-range premium, when trade 
thrives again, and losses are small. 

It is thus manifest that it can be no easy mat- 
ter to determine upon an inflexible premium 

beforehand, which will be reasonably safe for 
10 



142 GIVING AND GETTING CKEDIT. 

the insuring company, and satisfactory to the in- 
sured ; because the rate must come first, and a 
wide range of uncertainties in either direction 
afterward. The cost cannot be known, until the 
goods are sold. 

Yet withal, reasons are as plenty as FalstafPs 
blackberries, why a company, which can furnish 
absolutely safe and equitable insurance against 
credit losses, should receive welcome and sup- 
port, and become, in time, a bulwark of trade. 
If such possibilities do not lie within the scope 
of the system at present operative, or in some 
modification of it, it is reasonable to think that 
some other plan may in time be devised, which 
will extend this valuable privilege to the busi- 
ness community. 

The companies which have been organized 
for this purpose have shown commendable 
enterprise, but they have been unfortunate in 
stumbling upon hard and unfavorable condi- 
tions so early in their career. Yet the large 
number of substantial concerns, in all parts 
of the country, which have been and perhaps 
are still their patrons, shows a willingness to 
sustain them, and manifests the general de- 



GUAKANTEE OK INDEMNITY. 143 

sire for some form of protection against credit 



There are many reasons to believe that Credit 
Insurance will receive a full measure of public 
confidence and support when, and only when, it 
has passed through its experimental stages, and 
settled its foundations firmly upon broad, ac- 
curate, prudent, and approved generalizations. 
The great, trusted and successful company of 
the future will be a growth or an evolution. 



CHAPTER X. 

A UNIFORM BANKRUPT LAW. 

It is a constant source of perplexity and loss 
to American merchants, who give credit, that 
while all the people speak the same language, 
use the same kind of money, obey the same 
national control, and trade freely throughout 
the general domain, each State has its own 
special laws for regulating the property rights 
and duties of its citizens. 

Forty or fifty independent legislation-mills in 
the country grind out, every winter, from five to 
eight thousand laws, many of which are incon- 
gruous, unjust, or oppressive; and there is a 
constant ebb and flow of enactment and repeal, 
bewildering even to a Philadelphia lawyer. 
Worse still: lobbyists swarm at every State 
capitol, and statutes are made to order for rich 
men's money, or the votes of the rabble. Surely, 
no nation on earth has greater need for a uni- 
144 



A UNIFORM BANKRUPT LAW. 145 

form system of bankruptcy than the United 
States. 

The Constitution vests in the general Govern- 
ment the power < £ making such a law, while it 
forbids the States to impair the obligation of 
contracts. And although, in the absence of a 
National law, some of the States have enacted 
insolvent laws, such statutes are incomplete and 
unsatisfactory. 

The foundation doctrine of an insolvent law 
is, that it extends only to exempt a debtor from 
liability to arrest or imprisonment for debts pre- 
viously contracted, on condition of his giving 
up all his property for the benefit of his credi- 
tors; that of a bankrupt law, to protect his 
future acquisitions from his creditors. 

Insolvent laws are therefore passed for the 
benefit of debtors, and they bind only citizens of 
the State which enacts them. Under none of 
them can a debtor secure a release from non-resi- 
dent creditors : few provide for even a limited 
discharge, except through the clemency of credi- 
tors, and they afford the latter but scant protec- 
tion against fraud and chicanery. All State 
laws on the subject are suspended when a gen- 



146 GIVING AND GETTING CEEDIT. 

eral law of bankruptcy is in force, and the fail- 
ure of Congress, for many years, to pass such a 
law is thought to have been unfavorable to the 
best interests of the country. 

Congress passed the first bankruptcy bill in 
the year 1800, and repealed it in 1803. Another 
was enacted in 1841, and repealed in 1843. 
Both were passed for the relief of debtors 
who had failed during the preceding commer- 
cial crises. The loose and burdensome meas- 
ure of 1867 was amended in 1874, and repealed 
in 1878. 1 

Early in the century, the eminent Chancellor 
Kent, and other lawyers, were of the opinion that 
a law which discharged debts without full pay- 
ment was demoralizing. It was thought to en- 
courage reckless trading, speculation, and ex- 

1 This law of 1867 was framed by Congressman Jenckes 
of Rhode Island. It was an attempt to secure equity by 
forbidding preferences, and by dissolving all recent at- 
tachments upon the debtor's property ; and to relieve 
honest debtors by granting them discharges on certain 
conditions. The amendment in 1874 rendered it diffi- 
cult and expensive to force a debtor into bankruptcy. 
It also enabled him more easily to obtain a discharge 
by composition, which was objected to as giving too 
much power to the debtor, and too little to the courts. 



A UNIFORM BANKRUPT LAW. 147 

travagance, and as tending to diminish that 
wholesome horror of bankruptcy which all men 
should feel. 

But experience, under the vastly changed con- 
ditions of more recent times, teaches otherwise. 
Officials familiar with the administration of the 
present English bankrupt law declare that it 
tends to promote more prudent habits and 
greater carefulness, that its operation gives 
much satisfaction, and shows a steady and per- 
manent improvement. 

It is now generally conceded that the material 
advantages of a well-devised bankrupt law far 
outweigh all objections that can be brought 
against it, and that it is also desirable on the 
ground of common humanity. 

During the progress of the century, legal 
severities toward the unfortunate have been 
more and more relaxed or mitigated. Judge 
Story early called imprisonment for debt a meas- 
ure " disgraceful even to an enlightened despot- 
ism," and it is now, happily, a thing of the past. 
But that profound and accomplished jurist also 
declared that he could recognize no distinction 
between the injustice of imprisoning the body 



148 GIVING AND GETTING CREDIT. 

of an honest debtor, and of monopolizing all his 
future earnings. 

The law formerly regarded the bankrupt as a 
quasi criminal. It now generally looks upon 
him as neither innocent nor guilty, but as one 
whose conduct requires examination. If it be 
found that his failure is the result of honest 
misfortune, the law, under every civilized flag 
but our own, distributes his property among his 
creditors, and compassionately grants him a dis- 
charge; but denies it to his faults. 

If any think a well-planned bankrupt law to 
be merely a legislative act which enables a lot 
of debtors to escape their obligations, they mis- 
take its scope and spirit. It operates also to 
frustrate and punish fraud, and protect creditors. 
It bears the same relation to estates in liquida- 
tion, because of dishonesty or failure, that pro- 
bate laws bear to the estates of deceased persons. 

Without doubt, the abuses practised under the 
administration of each of the former bankrupt 
laws gave much cause for dissatisfaction ; and 
there are some who profess to believe it impos- 
sible to pass a wise law, because the old ones 
were defective. But this is to deny that ex- 



A UNIFORM BANKRUPT LAW. 149 

perience and intellectual progress can bear 
fruit. 

Our early legislators had, upon this subject, 
but a narrow range of precedent and practical 
knowledge from which to draw conclusions. 
The nation has since observed and cogitated, 
and now thinks itself qualified to frame a single 
law, which shall avoid the errors and embody the 
wisdom of all the many State and National in- 
solvent and bankruptcy laws which have pre- 
ceded it. 

That such a measure has, in fact, been already 
prepared, those familiar with the provisions of 
the Torrey Bill firmly believe. Every part of 
this bill has been long and carefully scrutinized, 
both by legal knowledge and mercantile experi- 
ence. It has been much amended and improved 
from the original draft, and is now considered 
ripe for enactment. 

Congressional committees have warmly ap- 
proved the Torrey Bankruptcy Bill, and urged 
its passage. In response to the popular, non- 
partisan and non -sectional demand, it will prob- 
ably soon become a law. 

In June, 1892, Mr. Oates, chairman of the 



150 GIVING AND GETTING CKEDIT. 

House Committee on the Judiciary, submitted 
a report on the Torrey Bill, which characterized 
it as follows : 

"A summary of the bill in five words: A 
square deal all around." 

" A summary in a paragraph : a measure for 
the discharge of honest insolvents, the diminu- 
tion of fraud, the prompt and economical ad- 
ministration of bankruptcy estates, the main- 
tenance of integrity in transactions on credit, 
and the promotion of commerce." 

Many commercial bodies have addressed Con- 
gress in advocacy of the Torrey Bill. Among 
them is the National Board of Trade, which, 
at its session in Louisville a few years ago, 
adopted a memorial to Congress, commending 
its provisions, and requesting its passage. 
This memorial declared that, in the opinion 
of the Board, the Bill, if made a law, would 
effect the following results, viz : — 

1st. Diminish the number of failures. 

2d. Increase the amounts paid by insolvent 



3d. Abate the class of fraudulent adven- 
turers. 



A UNIFORM BANKRUPT LAW. 151 

4th. Hold in check that class who make a 
business of failing. 

5th. Put an end to the system of legalized 
robbery, constantly perpetrated through con- 
cealed or pocket judgments founded in fraud. 

6th. Substitute one uniform, equitable law 
for the numerous incongruous and inefficient 
State insolvency laws. 

7th. Provide a uniform collection law. 

8th. Restrain compulsory processes against 
honest, solvent, but embarrassed merchants, 
who, under present conditions, are liable to 
suffer from contests between creditors to secure 
preferences. 

9th. Repress commercial wrongs not now 
designated as crimes, but forbidden in the Tor- 
rey Bill. 

10th. In effect increase the invested capital 
of all dealers by giving more general confi- 
dence. 

11th. Secure to honest unfortunates a dis- 
charge from the excess of their indebtedness 
over the amount of their assets. 

12th. Check the fraudulent system of indi- 
vidual creditors obtaining from bankrupt debtors 



152 GIVING AND GETTING CREDIT. 

a larger percentage than others receive, as a 
condition precedent to discharge. 

13th. Prevent fraudulent preferences. 

14th. Secure a prompt adjustment of matters 
in controversy, by arbitration, compromise, or 
litigation. 

15th. Provide for holding creditors' meetings 
at places which will best serve the convenience 
of the greatest number. 

16th. Secure an equitable division of the as- 
sets of insolvents among their creditors, quickly, 
and at a minimum cost. 

If Congress will enact this or a similar bill, 
and its operation fairly justifies the claims made 
in its behalf, it will prove a benefaction to the 
commercial world. The wonder will then be 
that, for seventeen years, we have tolerated the 
inequitable, confused, exasperating, and unnec- 
essary conditions which have prevailed in the 
absence of such a law. 



CHAPTER XL 

PANICS. 

The people have repeatedly suffered during 
the century from visitations of what, for want 
of a more definite word, is loosely termed a 
"panic." From the fact that these calamities 
have never been produced by natural causes, 
such as earthquakes, pestilence, or famine, 
they have sometimes been held to signify some 
radical defect in our economic system, which 
can only be remedied by reconstructing it upon 
a different basis. 1 

The English economist, W. Stanley Jevons, 

1 A writer in the English Journal of the Statistical 
Society states, that in the 11th, 12th, and 13th centuries, 
the average was, in England, one famine every fourteen 
years. Authorities like Godwin, Ricardo, and Mill say, 
that we have succeeded in rendering a famine "next to 
impossible. " The masses no longer fear a famine, but 
its opposite, a glut of those commodities which they 
themselves produce and most need, because such a con- 
dition is followed by distress among them. 
153 



154 GIVING AND GETTING CREDIT. 

related panics to the sun-spots which, in modi- 
fying the rainfall, affect crops and prices. 1 
Others refer them to over-production. John 
Stuart Mill pronounces this an error, and says 
panics are caused by a contraction of credit, and 
the remedy is a restoration of confidence. This 
seems about like saying that sickness is due to 
ill-health, and the remedy is to get well. A 
panic, and a general loss of confidence, are 
practically equivalent and reciprocal terms. 
One is as much the cause as the effect of 
the other, and either produces contraction of 
credit. 

England has had, since 1814, as many panics 
as we ; and so has France, except that she es- 
caped that of 1873, because of the Franco-Prus- 
sian War. Sometimes the panic has appeared 
a year or two earlier or later in one country 

1 In a recent issue of Les Sciences Populaires, Professor 
Mascari assigns the latest maximum of sun-spots to 
August, 1893. The last sun-spot maximum preceding 
this occurred early in 1884. This record is made up 
by the Professor chiefly from his own observations at 
the observatory of Catania. It may interest some to note 
the coincidence, that both 1884 and 1893 were years of 
panic. 



PANICS. 155 

than in the others, but its effects have been prac- 
tically simultaneous in the three, and to a 
greater or less extent throughout the commer- 
cial world. 

We have been accustomed to think that, while 
the changing phases of foreign affairs — the 
financial attitude of other nations, and their de- 
mand for our products, might bear close relation 
to our welfare, they did not cause our panics. 
These have nearly always been popularly and 
perhaps plausibly attributed to domestic events, 
such as unwise legislation, tariff changes, scant 
crops, credit inflation, or unsound currency. 

But, unless the above facts are no more than 
coincidences, they would seem to indicate that 
these sweeping commercial revulsions really 
originate from causes common to all the panic- 
stricken nations, and that our national occur- 
rences are but proximate or secondary causes. 
Perhaps some philosopher will arise and tell us 
that a recondite tendency to panics is to be 
found in modern civilization, or, deeper still, in 
the natural foibles of human nature, to be 
developed, like great epidemics, by some un- 
known influence. 



156 GIVING AND GETTING CREDIT. 

It is not difficult to see now, why we have 
been afflicted with a full share of the world's 
panics. The amazing progress of the country, 
and the nature of its institutions, have seemed to 
render it necessary to attempt the solution of 
many pressing legislative and economic prob- 
lems in an experimental way. We have, there- 
fore, lived, more than the people of any other 
great nation, in a constant state of uncertainty 
— not perhaps as to general results, but in re- 
spect as to what to-morrow's legislative meas- 
ures may have in store for us as manufacturers 
and merchants. 

Trade has its natural laws, under which its 
highways, methods, and usages are established 
along the line of least resistance. But they 
must be constantly readapted to changing con- 
ditions; and constant change, or apprehen- 
sion of change, creates that uncertainty of the 
future which renders business speculative, 
hazardous, and demoralizing. Mercantile in- 
terests generally, and the credit system es- 
pecially, demand a stable basis upon which 
to calculate. Business men prefer to anchor 
upon even tolerable conditions, rather than 



panics. 157 

drift in shifting channels, which is always 
dangerous. 

The panic of 1814 followed the war with Eng- 
land in 1812. The blockade of our ports had 
prevented the export of produce, and drained 
away our specie. Peace came in 1814, when 
England inundated us with her wares and drove 
our own manufacturers and merchants out of 
business. The war debt created exceeded $80,- 
000,000. Much paper money was afloat, and 
the want of a solvent currency was severely 
felt. The banks, except in New England, sus- 
pended specie payments. 

In 1816, Congress chartered, foi^twenty years, 
a National Bank, with a capital of $35,000,000. 
It was located at Philadelphia, but permission 
was granted to establish branches elsewhere, 
under certain conditions. There were twenty- 
five directors, five of whom were to be chosen 
by the President, and all were made personally 
liable for violations of the charter. A vast 
issue of paper money followed. In 1818, the 
bank had passed the safety line, and was at 

the mercy of its creditors. A panic was pre- 
11 



158 GIVING AND GETTING CREDIT. 

cipitated upon the country, and there was much 
distress. 1 

Liquidation ceased in 1819 and prosperity re- 
turned. But we had not learned how to deal 
with banking institutions, and " wildcat" banks 
of issue sprang up in various parts of the coun- 
try, because they could be organized with little 
or no tangible capital, and were subject to no 



1 Our patriotic forbears seem to have been as much 
befogged on the money question as are some of our fel- 
low-citizens. Here are some specimen views : 

" Do you think, " said a delegate to Congress during 
the Eevolutionary War, " that I will consent to load my 
constituents with taxes, when we can send to our printer 
and get a whole wagon -load of money, one quire of 
which will pay for the whole?" 

An address issued by Congress to the States, in 1779, 
contains these words : 

"Let it be remembered that paper money is the only 
kind of money which cannot take unto itself wings and 
fly away. It remains with us ; it will not forsake us. 
It is always ready and at hand for the purposes of com- 
merce, or taxes, and every industrious man can find it," 
At this time Congress had no power to tax, and efforts 
were made to keep the paper currency from sinking in 
value by legally regulating the prices of commodities. 

Prior to these events, Adam Smith, author of the 
famous " "Wealth of Nations, " had compared the use of 
gold and silver money to a highway on the ground ; 
that of paper money to a wagon -way through the air. 



panics. 159 

effective supervision or control. There was, for 
several years, an abundance of currency ; but a 
crisis came in 1825, and again confusion and 
distress prevailed, although England suffered 
still more severely. 1 

After recovery, business continued active 
and money plentiful until, in 1831, there were 
some considerable embarrassments, due to ex- 
panded credit, and other circumstances. 

In 1833, President Jackson, who opposed the 
Bank of the United States, ordered that the pub- 
lic deposits held by it, amounting to some $37, 
000,000, be transferred to eighty selected local 
banks in various parts of the country. These 
banks soon came to regard this money almost 
as a permanent deposit, and, upon the strength 
of it, poured forth volumes of paper currency. 

It was a period of swift and splendid national 
development. The lakes and rivers of the coun- 
try teemed with steamboats. Stephenson's loco- 

1 The bank charters of those days were largely " based 
upon ignorance, intrigue, favoritism, or corruption." 
James Buchanan thus characterized the Bank of the 
United States: "It has defied Congress, violated the 
laws, and is mixed up in politics." 



160 GIVING AND GETTING CREDIT. 

motive, "The Rocket," had firmly established 
the practicability of steam travel and transpor- 
tation by rail, and the eleven hundred miles of 
railway in operation in 1835 were destined to 
be doubled, each five years, until 1860. Coal 
displaced wood as fuel. New towns and cities 
marked the outburst of progress. Chicago, 
which was only a frontier post in 1832, became 
in six years a flourishing town, having eight 
steamers connecting it with Buffalo. 

Under these conditions credit expanded pro- 
digiously, and a frenzy of speculation fell upon 
the people. There were great land " booms" in 
Maine and throughout the West, and the ster- 
ling simplicities of life were forgotten in dreams 
of quickly acquired wealth without labor. Im- 
ports, in 1836, exceeded exports by more than 
fifty million dollars, which called for specie. 
The day of reckoning was at hand. 

In 1835, the President announced to Congress 
that the public debt was extinguished, and urged 
legislation in regard to the disposition of the 
surplus. A law was therefore passed in 1836 
withdrawing the scattered millions of specie 
from the banks, for the purpose of distributing 



PAKICS. 161 

it among the States. Sales of the public lands 
had increased from about $3,000,000 in 1831, to 
$25,000,000 in 1836, and the President, who 
seemed resolved to smash things and leave the 
repairs to his successor, now ordered that hence- 
forth only coin should be received for them. 

People at once awoke to realize that they had 
"been a-riding in a balloon, and the gas was 
out." A heavy decline in the price of cotton 
and other exports increased the troubles. The 
Bank of the United States, and most other 
banks, suspended. Nearly everybody failed. 
Notes were worthless, loans unpaid, confidence 
utterly destroyed. Some States repudiated 
their obligations, and the General Government 
was in peril of bankruptcy. It was a dismal 
time. Stay laws were hastily passed, and 
American credit received a shock from which 
it did not fully recover for many years. 1 

The panic of 1857 burst upon the country like 
a tempest from a clear sky. California had 
poured into the lap of the world over four hun- 
dred millions of gold during the seven preced- 

1 It was estimated that the panic of 1837-39 caused 
33,000 failures, involving a loss of $450,000,000. 



162 GIVING AND GETTING CKEDIT. 

ing years, and her yield in 1857 was fifty-five 
millions. Immigrants had been coming to our 
shores at the rate of a thousand or more a day, 
and, avoiding slave soil, had swarmed upon our 
Western lands. 

The harvest of the preceding year was one 
of the finest ever garnered. Our carrying trade 
was increasing; factories were nowhere idle. 
There was no governmental exigency, no popu- 
lar discontent. The telegraph had been brought 
into general use, and a great mileage of railway 
had been recently completed, or was under con- 
struction. The conditions of life were changing 
with bewildering rapidity. Prices were high 
and advancing, and there was a prodigious ex- 
pansion of credit. 

But with the coming of summer there was a 
vague uneasiness in the air, which soon grew 
into distrustful apprehension. Banks carefully 
scrutinized their collateral, and called in loans, 
and prudent merchants set their houses in order. 

On the 24th of August the Ohio Life Insur- 
ance and Trust Company failed. This was a 
large institution, located by its charter in Cin- 
cinnati, but its chief business was banking in 



panics. 163 

New York, where its cashier resided. He had 
borrowed several millions on call, upon securities 
which could not be turned into cash when de- 
mand was made for the return of the loans. 

This event was the panic signal, and the pub- 
lic confidence at once gave way to fright. 
Within a few days, prices fell fifty per cent 
upon the Stock Exchange. Everybody wanted 
money, but it was impossible to realize upon any 
kind of property, except at a disastrous sacri- 
fice. Many houses failed, and within a few 
weeks the banks of New York and other cities 
suspended payments. 

The effects of the panic of 1857 were widely 
and profoundly felt, but recovery was compara- 
tively rapid. It was generally thought to have 
been caused by the inflation of credit, over-trad- 
ing, and speculation. 

The great Civil War began with the sur- 
render of Fort Sumter, April 14th, 1861. 
Specie payments were generally suspended 
throughout the United States on the 30th of 
December, 1861, because of the issue of paper 
currency by the Government for war purposes. 
Commercial dealings with the Southern States 



164 GIVING AND GETTING CREDIT. 

were entirely cut off. The surrender of Lee to 
Grant, April 9th, 1865, practically ended the 
war, and the issue of greenbacks ceased. 

The country now resolutely set itself to the 
task of grappling with its huge war debt, and 
before all the soldiers had been sent home it was 
reduced $30,000,000. As might naturally be 
expected, there were some financial and busi- 
ness disturbances at this juncture. 1 

In the spring of 1866, Overend, Gurney & Co. , 
one of the largest and most influential firms in 
Europe, suspended payment. This house stood 
next to the Bank of England as a tower of finan- 
cial strength, and was known all over the world. 
This, and other events, produced stagnation and 
distress for a time, but its effects were not very 
seriously or extensively felt in this country. 

Some years of rapid material progress fol- 

1 The national debt was, in 1857, twenty-eight millions ; 
in 1860, sixty-five millions ; in 1861, ninety-one millions ; 
in 1862, five hundred and fourteen millions ; in 1863, 
eleven hundred and twenty millions ; in 1864, eighteen 
hundred and sixteen millions. In August, 1865, it 
reached twenty-eight hundred and forty-five millions, 
which was the maximum. Specie payments were not 
resumed until January 1, 1879. 



PANICS. 165 

lowed this epoch, notwithstanding that the 
people insisted upon paying the National debt 
as fast as possible. It seemed that, in passing 
through the terrible war, the Nation awoke for 
the first time to a full realizing sense of its 
greatness, its strength, and its resources, and all 
the arts of peace now sprang forward with 
amazing elasticity. Prosperity was general, at 
least throughout the Northern States. Produc- 
tive and transportation facilities were greatly 
increased. The country was busy with its in- 
dustries. 

The period around 1870 is remarkable for its 
railway construction, which opened up large 
areas of new territory to settlement. 1 But 
much capital was absorbed in these enterprises, 
many of which proved unproductive. Money 
grew scarce, interest high, and times hard. The 
collapse of the "building mania" in Vienna, in 
1873, was followed by financial troubles through- 
out Europe. 

The American crisis came, in September of 
this "bad year," with the failure of Jay Cooke 

'4,615 miles of railway were built in 1869; 6,070 in 
1870, and 7,379 miles in 1871. 



166 GIVING AND GETTING CBEDIT. 

& Co. The head of this house had been the 
financial agent of the Government during the 
war, for the sale of its bonds, and more than 
$2,000,000,000 had passed through his hands. 
He afterward became financial agent for the 
Northern Pacific Railway, and his failure fol- 
lowed this connection. 

The country was flooded with securities, and 
other failures came swiftly. Eighty-three rail- 
way companies suspended payment, and the 
New York Stock Exchange found it expedient 
to close its doors from the 18th to the 30th of 
September. 

All industries were affected. Commodities 
declined in price ; factories in all parts of the 
country were closed down, because their prod- 
ucts were unsalable, and great numbers of peo- 
ple were thrown out of employment. 

Several grim and weary years elapsed before 
this industrial paralysis passed away. In fact, 
many believe this panic to have been more 
grievous than any which preceded it, because 
its results were of such long duration. 

Enormous speculative enterprises came again 
with the advent of prosperity, and reached their 



PANICS. 167 

climax in 1880-81, when a movement toward 
lower prices for railway securities set in, owing 
to competition in rates, and stock manipulations. 
In 1883, warehouses were crowded with goods, 
gold was being drawn away from the country, 
and failures were somewhat numerous. 1 

In May, 1884, the New York house of Grant 
& Ward failed disastrously, with liabilities of 
$17,000,000, and several New York city banks 
suspended. Other failures followed, and for a 
time intense anxiety prevailed. But the city 
banks formed a syndicate for mutual protection 
and support, and the general distrust soon died 
away. This crisis was more severe in New 
York than elsewhere. It may, in fact, be called 
a panic in securities, which affected speculators 
and financiers more than those in trade. 

1 Railway construction in 1880 reached 7,174 miles; 
in 1881, 11,142 miles; in 1882, 10,821 miles; in 1883, 
6,400 miles. 



CHAPTEK XII. 

THE PANIC OF 1893. 

The most severe and extensive panic, in 
many respects, which has ever afflicted this 
nation, was that of 1893. No section of the 
country has escaped its ravages, nor any indus- 
try its blighting effects, and the spell of its in- 
fluence has not yet passed away. It cannot 
fairly be imputed to over-trading and specula- 
tion, and it sprang neither from too much nor 
too little currency in circulation. It will, how- 
ever, pass into financial history as a " currency 
panic," from the fact that its proximate cause 
was distrust of the stability of the currency, 
which produced a demand for our gold, and 
caused a general contraction of credit. 

But numerous events, here and elsewhere, 
have certainly assisted, more or less directly, to 
pave the way for, and intensify, this great crisis. 
Among these may be noted the depreciation of 
silver throughout the world, and the attendant 
decline in the prices of staple products, the bank- 
168 



THE PANIC OF 1893. 169 

ruptcy of some foreign nations, and the in- 
creased financial difficulties of others, the scan- 
dalous failure of the Panama Canal project, the 
collapse of the house of Baring Brothers & Co., 
the Australian bank failures, the suspension of 
silver coinage in India, our own tariff uncer- 
tainties, and the condition of the public Treasury. 
The five years from 1888 to 1892, inclusive, 
comprised a period of fair prosperity in the 
United States. Crops averaged satisfactorily, 
the volume of business was large, and labor was 
well employed. But speculation, as a rule, was 
only moderate on the exchanges, there was a 
constant decline in the prices of commodities, 
and competition was excessively sharp in all 
lines of business. It was a period of severe 
trial for small capitalists, and mercantile fail- 
ures were numerous. 1 

1 Commercial Failures. Liabilities. 

1888 10,679 $123,829,973 

1889 10,882 148,784,337 

1890 10,907 189,856,964 

1891 12,273 189,868,638 

1892 10,344 114,044,167 

1893 15,242 346,779,889 

1894 13,885 172,992,856 

— Dun's Review. 



170 GIVING AND GETTING CREDIT. 

One of the most important economic questions 
of modern times relates to the circulating me- 
dium, or currency. 

With the progress of civilization, the vastly 
increased production of commodities, the quick- 
ened intercourse between nations, and the mul- 
tiplied appliances of credit, there has come also 
a monetary evolution. Among barbarous peo- 
ple, wampum and cowry shells serve as a 
medium of exchange; but the tendency is, as 
wealth and knowledge increase, to adopt a 
more substantial, convenient, and valuable 
form of money. For many centuries, there- 
fore, the more enlightened races have used gold 
and silver. 

Owing, however, to the constantly increasing 
difficulty of keeping these two metals at a parity 
of value, or from "parting company" in their 
relative values, and the fact that payments will 
always be made in the least valuable currency 
— in virtue of the law that " bad money drives 
out good money," the most important commer- 
cial countries have, one after another, closed 
their mints to silver, and adopted a gold stan- 
dard. The result has been that the annually 



THE PANIC OF 1893. 171 

increasing surplus of silver has "glutted and 
cloyed all markets." 1 

This mighty measure of alleged contraction 
has not been accomplished without much oppo- 
sition. It is stoutly maintained that money 
owners, and creditor nations like England, have 
been benefited, while agricultural, industrial, 
and commercial interests throughout the world 
have correspondingly suffered. 

It has been followed by a great reduction in 
nominal values, by frequent trade depressions 
and financial revulsions, and by the bankruptcy 
of several debtor nations. 

As the United States is the leading silver-pro- 
ducing country of the world, there has naturally 
been a strong and widespread feeling averse to 
the demonetization of the white metal by our 
Government, and the policy pursued for many 
years was a waiting one. In 1873, however, 
the Government ceased to coin silver on private 



1 This would probably have occurred long ago but for 
the fact that the populous East has absorbed such pro- 
digious quantities of silver from the Western nations. 
Humboldt observes that silver has always moved in a 
direction opposite to the movement of civilization. 



172 GIVING AND GETTING CREDIT. 

account, and made preparation to return to a 
gold standard, thus practically demonetizing sil- 
ver. But in 1878 the passage of the Bland Bill 
once more made silver a legal tender, and re- 
established the double, or bimetallic standard. 1 
But the friends of silver became dissatisfied 
with this measure. It did not go far enough. 
New mines of the metal, and new and improved 
processes for its extraction, were being constant- 
ly discovered and developed, and its production 
correspondingly waxed in quantity, while it 
waned in value, as compared with gold. 

1 The Bland, or Bland-Allison Bill imposed upon the 
Secretary of the Treasury the duty of purchasing silver 
bullion and coining at least two million dollars every 
month, each to weigh 412| grains, the same to be legal 
tender. This bill passed the Senate by a vote of 48 to 
21. It became a law over the President's veto. 

The bill had the support of both Senators from Penn- 
sylvania, Ohio, Indiana, Illinois, "Wisconsin, Nebraska, 
and Minnesota. Of those opposed, seven were Demo- 
crats and fourteen Republicans. Among the Democrats 
were Bayard of Delaware, Kernan of New York, Whyte 
of Maryland, and McPherson of New Jersey. Among 
the Republicans were James G. Blaine and Roscoe 
Conkling, Morrill and Edmunds, of Vermont, and both 
Republican Senators from Massachusetts, New Hamp- 
shire, and Rhode Island. One California senator voted 
against the bill, the other in favor of it. 



THE PANIC OF 1893. 173 

The Government was pledged to maintain 
parity between its coinage of both metals, and 
additional pressure was brought to bear that, 
as the mint was open to the free coinage of gold, 
so also it should be opened to the free coinage of 
silver. Happily, wiser counsels prevailed, and 
the country escaped the task of carrying the sil- 
ver of the world — a burden too heavy for the 
shoulders of any single nation. 

It was at length proposed, as an alternative — 
which the free-coinage advocates hoped would 
be but temporary — that the Government should 
purchase silver bullion, and hold it as a basis for 
the issue of paper currency. This project was 
rendered more plausible by the great reduction 
in the National debt, and the gradual retire- 
ment of the bonds which serve as a basis and 
security for the currency issues of the Na- 
tional banks. 1 

There was much opposition, but in the sum- 
mer of 1890, under the exigencies of party poli- 

1 From July 1st, 1884, to July 1st, 1893, the National 

debt was reduced 586 millions of dollars. (The Director 

of the United States Mint reports the silver money of the 

world as $3,820,571,346 ; the gold money as $3,727,018,- 

869.) 

12 



174 GIVING AND GETTING CREDIT. 

tics, the Sherman Bill became a law. This en- 
actment directed the Secretary of the Treasury 
to purchase each month 4,500,000 ounces of 
silver bullion, and to issue against it legal- 
tender notes, payable "in coin." 

This measure is held by many as immediately 
responsible for the panic of 1893. It is alleged 
to have impaired confidence, at home and abroad, 
in the stability and soundness of our currency, 
incited the withdrawal and prevented the inflow 
of foreign capital, plunged the nation into un- 
certainty and apprehension of the future, 
checked enterprise and investment, and brought 
paralysis upon all our industries. 1 

The early effect of the Sherman law was ap- 
parently to impart a degree of buoyancy to busi- 
ness and advance the price of securities, al- 
though the latter was in part, if not chiefly, due 
to large railway earnings and easy money. It 
was generally believed that this silver legis- 
lation would enhance nominal values through 

J The total value of all the silver purchased by the 
Government under both the Bland and Sherman laws is 
but a fraction of the loss which they are believed to 
have caused ; a striking commentary on the worth of 
confidence and credit. 



THE PAKIC OF 1893. 175 

inflation of the currency. Our harvests in 1890 
were disappointing, and in the fall months came 
shrinkage of prices and depression. 1 

The year 1889 had been one of the most flour- 
ishing years in the commercial history of Great 
Britain. Good things were going in various 
parts of the globe, and "John Bull," with his 
jingling gold, had secured a full share of them. 

But along in the autumn of 1890 it suddenly 
transpired that the great London house of Bar- 
ing Brothers and Co. must fail disastrously, 
unless it could at once receive material aid. Its 
inability to meet its obligations, amounting to 
upward of a hundred and forty million dollars, 
was chiefly owing to investments in the Argen- 
tine Republic, which had been widely bulletined 
as "the finest undeveloped country in the 
world." 

In this emergency, Mr. William Lidderdale, 
Governor of the Bank of England, secured from 
a syndicate of great London houses a guarantee 

1 Many large industrial corporations were organized 
during the year 1890. Notably the H. B. ClaflinCo., 
J. P. Coats' Thread Works, American Tobacco Co. , 
Proctor & Gamble Co. , etc. The McKinley Tariff Bill 
went into operation on the 6th of October. 



176 GIVING AND GETTING CKEDIT. 

of protection against loss, to the extent of four 
million pounds sterling, if it would undertake 
to liquidate the Barings' estate, and, from the 
British Government, authority to issue seven 
million pounds sterling of notes to facilitate the 
matter. The Bank therefore assumed, on the 
15th of September, the task of meeting the Bar- 
ings' engagements, to the amount of twenty- 
eight million five hundred thousand pounds 
sterling. It was said that this action prevented 
the culmination of what "would have proved 
the most terrible panic recorded in history 1 . 

The crisis was averted, but the business world 
was stirred to its depths, and general confidence 
was but slowly restored. What English writ- 
ers described as a " semi-panic" existed for many 

1 In recognition of his services at this juncture, Mr. 
Lidderdale received the thanks of his Government, and 
the freedom of the city of London. The successful 
liquidation of the Barings' Estate has since fully 
justified the wisdom of his course. The paper signed by 
the parties to this great transaction is interesting as a 
model of brevity and simplicity ; it was as follows : 

"In consideration of advances which the Bank of 
England has agreed to make to Baring Brothers & Co. , 
to enable them to discharge at maturity their liabilities 
existing on the night of November 15th, we, the under- 
signed, hereby agree, each individual, firm, or company 



THE PANIC OF 1893. 177 

months in London, and this, together with de- 
bates in Congress upon the silver question, 
caused foreign investors to return to us large 
quantities of securities which, under our low 
bank reserves and money pressure, fell heavily. 
The North Eiver Bank, of New York city, went 
into the hands of a receiver, and there were 
numerous failures ; but the manufacturing and 
mercantile interests of the country were not so 
much disturbed as to excite general apprehen- 
sion. 

Bank statements, in 1891, revealed a consider- 
ably improved condition of affairs. Bountiful 
harvests, in face of scant crops in other coun- 
tries, helped greatly to restore confidence and 
advance prices, despite the possibilities of silver 

for himself, or themselves alone, and to the amount set 
opposite his or their names respectively, to make good 
any loss, whenever the Bank of England shall determine 
that the final liquidation of the liabilities of Baring 
Brothers & Co. has been completed, so far as in the 
opinion of the Governors is practicable. All the 
guarantors shall contribute ratably, and no one in- 
dividual, firm, or company shall be called on for his or 
their contribution without a like call being made on the 
others. The maximum period over which such liquida- 
tion may extend is three years, commencing Novem- 
ber 15th. 



178 GIVING AND GETTING CREDIT. 

legislation. A still larger volume of business 
was transacted in 1892, and failures were less 
numerous and important than in the year pre- 
ceding. Bank clearances exceeded those of 
1891 by nearly ten per cent. But crops, and 
especially that of cotton, were short, and the 
fact was reflected in railway earnings, and in ex- 
ports. There was increasing agitation of the 
silver question, a growing disposition abroad to 
drop American securities, and an alarming out- 
flow of gold. 

The year 1893 opened with gray skies. Prices 
of everything were low and falling, and though 
trade continued fairly active, there was little 
sale for commercial paper. During the first two 
months of the year our exports exceeded im- 
ports by thirty- six million dollars, yet gold was 
rapidly leaving the country, and the Treasury 
reserve as steadily declining — a fact which 
caused much anxiety. Failures during the first 
quarter were more numerous than for the same 
period in many preceding years. 

Large amounts of capital had, year after year, 
been sent from England to the banks in Austra- 
lia for investment. Most of these banks had 



THE PANIC OF 1893. 179 

branches throughout the country, a dozen some- 
times existing in a locality which could not 
offer legitimate business enough to support 
even one. There was much competition be- 
tween them, and as English money was plen- 
tiful, it easily found its way into all sorts of 
speculative enterprises, such as mines, railway 
and irrigation companies, sheep and ostrich 
farms, etc. 

This bubble was pricked early in 1893, when, 
from January 15th to May 15th, fourteen banks 
failed, with liabilities of nearly $500,000,000. 
The event did not create a notable panic in Lon- 
don, but it was another severe shock to confi- 
dence, and it made money more stringent. The 
effect upon trade, on both sides of the Atlantic, 
was depressing. 

As the popular anxiety and uncertainty con- 
tinued to increase, President Cleveland an- 
nounced, on the 20th of April, that he had deter- 
mined " to preserve the parity between gold and 
silver, and between all obligations of the Govern- 
ment." On the sixth day of June, he declared 
that "Congress must deal with the currency 
question, the condition of which is the only 



180 GIVING AND GETTING CREDIT. 

menace to the country's welfare and pros- 
peri ty." ! 

By June there were runs upon banks in vari- 
ous parts of the country, and an alarming num- 
ber of failures. Prices continued to droop upon 
the stagnant exchanges, and there soon came 
an embarrassing scarcity of currency. People 
were hoarding it. The banks of New York city 
rallied for mutual support, and authorized the 
issue of clearing-house certificates. The same 
thing was done in Philadelphia. It proved a 
helpful measure. 

On the 27th of June, it was announced that 
the Government of India had suspended free 
silver coinage, and determined upon a gold 
standard. There was an instant fall in the price 
of silver all over the world. Three days later, 
the President convened Congress, in extra ses- 
sion, for the 7th of August. 

1 The total net gold exports, during the first six 
months of 1893, were $61,958,895, as follows : 

January $12,213,553 

February 12,988,068 

March 1,504,991 

April 18,344,979 

May 15,205,760 

June 1,701,544 



THE PANIC OF 1893. 181 

Confidence was now so badly wilted that its 
revival seemed almost hopeless. The number 
of banks which suspended during July and 
August was unprecedented in the history of the 
country, and numerous railway companies, and 
other large corporations, became bankrupt. A 
large proportion of the manufacturing concerns 
of the country closed down, or curtailed their 
hours of labor. Great numbers of people were 
thrown out of employment, and there was wide- 
spread distress. 

Congress met on the 7th of August, and all 
eyes in the land were eagerly turned towards 
Washington. On the 28th of August, the 
House voted to repeal the Sherman law by a 
majority of 131, and there was an instant re- 
bound of hope and confidence. 

But repeal was fiercely resisted by a power- 
ful and adroit faction in the Senate, and for two 
months that august body debated, and "pre- 
served its traditions," while industry lan- 
guished, and the people suffered. 

At length a bill passed both houses of Con- 
gress, and became a law on the first day of 
November, 1893, which provides, not for the 



182 GIVING AND GETTING CKEDIT. 

demonetization of silver, but for the repeal of so 
much of the Sherman Act as required the pur- 
chase of silver bullion by the Government. 

It was hoped and expected that a revival of 
business would follow this legislation, but it had 
less effect than was anticipated. The silver 
market in Europe responded but slightly. 
Shipments of gold continued. There was no 
maintained advance in the price of securities or 
commodities. Confidence did not return; the 
waters had been too deeply troubled. 

There were fewer mercantile failures during 
1893 than might naturally have been expected 
under the conditions which prevailed, although 
the proportion of those failing in good credit 
is given as fully four times that in preceding 
normal years. The manner in which manu- 
facturers, and merchants generally withstood 
the strain bears witness that, as a rule, they were 
in a sound and conservative position. 

The year 1894 was a period of extraordinary 
depression in all departments of industry. Sev- 
eral times during the year there was a tendency 
toward improvement ; but the deficient revenues 
of the Government — which twice compelled the 



THE PANIC OF 1893. 183 

issue of fifty millions of bonds, the heavy gold 
exports, the low prices of our products, tariff 
uncertainties, the wrangle over the proposition 
to "coin the seigniorage," fears of "free silver" 
legislation, the revolutionary labor troubles, 
and other events, constantly deferred the return 
of confidence, and arrested the revival of trade. 1 
In April and May came disastrous floods in 
the Middle States, the strike of the Connellsville 
coke-workers, the Coxey armies of tramps, the 

1 "The gold exports are themselves the evidence of the 
destruction of confidence, for on the basis of our ordi- 
nary trade requirements there could be no need for gold 
shipments, as „he excess of exports of merchandise and 
silver for the twelve months ending November 30, 1894 
amounted to the large sum of $211,932,000. In face of 
this large trade balance, we were obliged to ship in the 
same twelve months no less than $73,704,000 gold, net, 
making the total excess of exports almost three hundred 
million dollars ($285,636,000). 

Low prices nearly everywhere were a striking char- 
acteristic of the year, accentuating the depression, while 
at the same time aggravating it. The price of wheat 
several times got down to below 55 cents a bushel in 
New York ; cotton sold at 5£ cents a pound in Novem- 
ber ; print cloths got down to 2|- cents a yard. Besides 
this, we might mention various other articles and com- 
modities which sold at extremely low quotations, such 
as iron, steel, sugar, etc. "—Commercial and Financial 
Chronicle. 



184 GIVING AND GETTING CREDIT. 

bituminous coal-miners' strike, which rendered 
it necessary to call out the militia in eight or 
ten States, and the resulting "coal famine." 
The event of June and July was the great and 
stormy strike of the American Railway Union 
to enforce the demands of the Pullman em- 
ployees. Government expenditures, for the fiscal 
year ending July 1st, 1894, were about $70,000,- 
000 in excess of the revenue. 

On the 8th of August, the gold balance in the 
Treasury stood at $52,189,500, the lowest figure 
of the year. The enactment of the Tariff Bill, 
which went into effect on the 28th of August, at 
once increased the revenues of the Government, 
and imparted some life to business. In Septem. 
ber there was a better demand for goods, stimu- 
lated by needs for consumption, and some hope- 
ful signs of slowly returning prosperity. There 
were no new disturbing developments, and a de- 
creasing number of failures. Production was 
expanding. 

But again, in December, the outflow of gold 
was heavy, large shipments being made each 
week through the month, and the " bad year of 
1894" closed with drooping markets. 



THE PANIC OF 1893. 185 

It became painfully evident in January, 1895, 
that the gold reserve in the Treasury must again 
be replenished. Another issue of Government 
bonds was therefore sold, in February, to a syn- 
dicate of bankers, who contracted to import gold, 
and to maintain such rates for foreign exchange 
as to render further exports of the metal un- 
profitable. It proved a felicitous and mas- 
terful stroke of policy. 

It seems now to have been the turning-point 
in the great panic. The ebbing tide of gold was 
at once checked, and the general movement of 
affairs put to the right-about. Hope revived; 
confidence grew. Depression gave way to en- 
thusiasm. Securities, iron, wheat, cotton, all 
the staples, advanced rapidly. 

It is impossible to predict what the future 
may bring, but up to this time, (August) , noth- 
ing has transpired to hinder the full return of 
prosperity. The demand for labor increases; 
wages advance; business improves; crops 
promise fairly well. Money is abundant, and 
interest low, with every prospect that it will 
long remain so. Belief has become general 
that industrial interests are at last coming up 



186 GIVING AND GETTING CREDIT. 

out of the wilderness of evil days, and now face 
toward piping times. The menacing clouds re- 
maining in the horizon are the scant revenue 
of the Government and the condition of the 
National Treasury, uncertainty regarding silver 
legislation, and the currency question. 

It is alleged that the Bland and Sherman laws 
have brought upon the Government a loss of 
nearly two hundred millions, and upon the peo- 
ple panic, deprivation, and distress. But they 
were circumscribed in their powers for evil, be- 
cause they authorized the issue of silver coin 
and currency only within certain limits. 

But it is to these limitations alone that the 
partisans of silver ascribe the mischief. We 
are asked to believe that if these enactments 
had but sanctioned unlimited silver coinage, 
they would have proved fountains of boundless 
prosperity, instead of panic-breeders. This is 
to say, that if we merely put our hands into the 
fire they may be burned, but if we plunge in all 
over we shall remain cool, comfortable, and 
happy. 

It is from texts like this that a multitude of 
mining colonels, politicians, populists, and 



THE PANIC OF 1893. 187 

quibbling demagogues seeking to ride to power 
and plunder upon any specious fad that offers, 
have been preaching in the crusade for free silver 
coinage. They are, in reality, attempting to 
manufacture sufficient votes to force fifty cents' 
worth of silver upon the people, as the lawful 
equivalent of a dollar's worth of gold. 

Their success would banish gold from circula- 
tion, and the price of commodities would soon 
be adjusted to the value of silver as bullion. 
Two Mexican silver dollars can now be obtained 
in exchange for one stamped with the American 
Eagle, because our Government is pledged to 
redeem the latter in gold. But when the Gov- 
ernment shall no longer maintain parity be- 
tween its coinage of gold and silver, the Mexi- 
can dollar will be more valuable than ours, 
because it contains more silver. 

It were better that we call half-a-bushel a 
bushel, and half-a-yard a yard, than half-a-dol- 
lar's worth of silver a dollar. This nation must 
have an honest unit of value, first, last, and all 
the time. 

The campaign in behalf of " Free Silver" has 
been conducted with vigor and shrewdness, but, 



188 GIVING AND GETTING CREDIT. 

thanks to the press and the platform, light is at 
last reaching the farmers who have grain to 
sell, the five million depositors in savings banks, 
the wage and salary earners, and all good citi- 
zens up and down the land who read and think. 
They are fast learning that free silver coinage 
is a delusion and a snare, and the danger that 
the nation may be plunged into its mad confu- 
sion is constantly decreasing. 

Silver is an old and faithful servant, but com- 
merce has outgrown its use, except as subsidiary 
coin. That the great nations will unite to rein- 
state it is altogether improbable. 1 Bimetallism 
has become a "back number." For the United 

1 The first International Monetary Conference was 
that of June, 1867, held, on invitation of the French 
Government, in Paris, "to consider the question of uni- 
formity of coinage, and to seek for the basis of ulterior 
negotiations. " The United States, and eighteen of the 
principal countries of Europe, were represented. The 
conference voted unanimously against the adoption, by 
the countries, of the silver standard ; and unanimously, 
with the exception of the Netherlands, in favor of the 
single gold standard. 

The second International Monetary Conference was 
called by the United States, and held at Paris in 1878. 
Germany refused to send delegates, but twelve countries 
were represented. It was the opinion of the delegates, 



THE PANIC OF 1893. 189 

States alone to sanction unlimited silver coinage 
at any ratio with gold which the friends of 
silver would approve, would be to open upon the 
country a Pandora's box of evils. 

The most enlightened opinion now holds that 
the world has reached a stage in its progress 
where gold and silver can no longer be forced 
to bear any fixed relation to each other as stan- 
dard measures and representatives of value, and 
that the best interests of mankind now require 
the adoption of the rarer, more valuable, and 



that the use of gold and silver as money should be left 
to the discretion of each state, or group of states. 

The third such conference, that of 1881, was called by- 
France and the United States, " to examine and adopt, 
for the purpose of submitting the same to the govern- 
ments represented, a plan and a system for the re-estab- 
lishment of the use of gold and silver as bimetallic 
money, according to a settled value between those 
metals." Nineteen countries were represented, but the 
conference adjourned without practical results. 

The fourth, and last, International Monetary Confer- 
ence met at Brussels in 1892. It was called by the Gov- 
ernment of the United States, "for the purpose of con- 
ferring as to what measures, if any, can be taken to in- 
crease the use of silver as money in the currency system 
of nations." Twenty countries were represented at this 
conference, but it adjourned without definite practical 
conclusions. 

I'd 



190 GIVING AND GETTING CREDIT. 

more stable gold as the universal foundation 
money. 

With the progress which is anticipated for 
the coming century, along all lines of thought 
and industry, will a way be found to prevent 
panics? 

We cannot, of course, foresee coming condi- 
tions, but, as the causes of panics and their 
remedies are in the keeping chiefly of those 
who suffer from them, it seems not unreason- 
able to expect that their prevention may be 
among the social and economic victories of the 
future. It may, at least, be confidently pre- 
dicted, that if their recurrence cannot be en- 
tirely obviated or suppressed, their power for 
mischief will be curbed — that as the world gains 
experience and wisdom, panics will become less 
frequent, less severe, and of shorter duration. 

Yet there are those who contend that panics 
will continue to come and go as in times past, 
in virtue of some vast purpose, some principle 
of rhythmic ebb and flow involved in the un- 
folding plan of evolution. They argue that, as 
the law that all must die rules over all causes of 



THE PANIC OF 1893. 191 

death, so, under law, panics must inevitably 
accompany commercial activity, independently 
of desultory events held to be their proximate 
causes, such as good or bad crops, the policy 
of political parties, or even the caprices of hu- 
man nature. 

It may be so, but we, practical people, can 
hardly accept such theories. Yet we, too, be- 
lieve in the reign of absolute law, such, for ex- 
ample, as that which governs the running of a 
watch. If it is badly constructed, if there is 
sand among its cogs, or its wheels get askew, it 
will not keep time until it is repaired and ad- 
justed. In other words, we believe in the law 
that effect follows cause, and that the former 
will be differentiated as we modify the latter. 

If we may at all judge the future by the past, 
the panics that lie along the course of affairs 
will prove beacon-lights of warning and in- 
struction. 

They teach, among other things, that it is not 
law but labor that creates value, and that the 
dollar, the unit of value, must be rigorously 
measured by the average amount of intelli- 



192 GIVING AND GETTING CREDIT. 

gence, capital, and labor required to produce its 
metal. And furthermore, that a baseless, or too 
much expanded paper currency, is sure to prove 
a treacherous stimulus, which will leave in its 
wake depression, disorder, and insolvency. 

They give grounds for the conclusion that the 
notion of a so-called "elastic currency," or one 
which will automatically expand and contract 
according to the needs of the people, is a fal- 
lacy, because the inherent force of money 
makes only for expansion. The kite must have 
a tail. 

A study of panics will suggest to the vigilant 
and cautious business man that he should be on 
the lookout for a sudden change of popular sen- 
timent after a lengthened period of general pros- 
perity and expansion of credit. 

He will observe that the conditions which 
have usually preceded a panic were something 
as follows: speculation active, labor well em- 
ployed, immigration heavy, stocks, commodi- 
ties, and especially iron and its products have 
advanced regularly in price, and become station- 
ary or top-heavy. Luxury and expenditure 
flourish, and the pace of everything is swift. 



THE PANIC OF 1893. 193 

Bank statements show large amounts of loans 
and discounts, and decreasing deposits. 

When, on the other hand, the panic has 
passed, and the end of liquidation has come, 
when prices have touched bottom and begin to 
rebound, when idle workmen find employment, 
when bank statements show increasing de- 
posits and a healthy demand for discounts, and 
the general stringency of expenditure is relaxed, 
he will naturally conclude that conditions indi- 
cate a return of confidence, a rapid resumption 
of prosperous business, and an upward move- 
ment, which will probably last from two to four 
years, with comparative safety in extending 
credit. 



APPENDIX 



ASSIGNMENT, INSOLVENT, EXEMPTION, AND OTHER 
LAWS OF ALL THE STATES AND TERRITORIES. 

ALABAMA. — Has no distinct insolvent or assign- 
ment law, but assignments can be made at common 
law. There can be no preferences in a general assign- 
ment. Acceptance of a dividend under assignment 
does not discharge debtor. Twenty years bar actions 
upon judgments. Six years bar actions for money 
loaned, stated accounts, or promise in writing. Three 
years bar open accounts. Legal Interest, eight per 
cent. Exemptions : Homestead of house and lot in 
town, or one hundred and sixty acres in the country, in 
either case not to exceed two thousand dollars in value ; 
also personal property to the value of one thousand 
dollars, certain specified articles, and wages to the 
amount of twenty -five dollars per month. 

ARIZONA. — Has no insolvent law. Five years bar 
actions on judgments ; four years bar contracts in writ- 
ing ; two years if not in writing. Exemptions : The 
homestead not exceeding in value five thousand dollars, 
and certain specified articles to the value of six hundred 
dollars. Legal Interest, ten per cent. 
195 



196 APPENDIX. 

ARKANSAS. — Has an assignment law for the benefit 
of creditors which permits preferences. It does not dis- 
charge the debtor from his obligatioDs without unani- 
mous consent of the creditors, nor does it affect the 
claims of those who do not come into the assignment. 
Limitations of Actions : On accounts, three years ; notes 
and sealed instruments, five years; on judgments, ten 
years. Legal Interest, six per cent. Exemptions: 
For head of a family, outside of any town or city, one 
hundred and sixty acres of land, not to exceed twenty-five 
hundred dollars in value, or not less than eighty acres 
without regard to value. In city or town not exceeding 
one acre, of the value of twenty-five hundred dollars, or 
not less than one-fourth of an acre without regard to 
value ; also, for the head of a family, personal property 
to the value of five hundred dollars. For a single person, 
two hundred dollars' worth of personal property besides 
wearing apparel. 

CALIFORNIA. — Hasan insolvent law, which does not 
permit preferences, but under which the debtor may be 
discharged from obligations incurred in the State to 
citizens of the State. Non-resident creditors, who do 
not voluntarily become parties to the proceedings, can 
retain their claims against the debtor. Limitations: 
Actions must be commenced within five years on the 
judgment or decree of a court ; within four years on a 
promissory note, contract, or obligation in writing, 
executed in the State ; within two years upon any con- 
tract or obligation not in writing. Seven per cent is 
legal interest. Interest cannot be collected on open ac- 
counts. Exemptions: The homestead (under certain 
conditions) , not exceeding in value five thousand dol- 
lars ; the cabin or dwelling of a miner, not exceeding 
five hundred dollars in value, and a list of specified 



APPENDIX. 197 

articles necessary, or applicable, to the trade or calling 
of the debtor. Days of grace are not allowed on bills 
of exchange or promissory notes. 

COLORADO. — Has an assignment law, which does 
not permit preferences, and does not discharge the 
debtor without the unanimous consent of his creditors. 
The claims of creditors who do not come into an assign- 
ment are secondary to those filed within three months 
after assignee has mailed notice of assignment, unless 
creditors can show that they did not receive such notice. 
Limitations of Actions : Execution may issue on a 
judgment for ten years from its entry, but it is then 
considered as satisfied unless revived. Actions for debt 
founded upon contract or liability in action must be 
brought within six years. Exemptions : Tools and 
stock in trade, used in carrying on business, to the value 
of two hundred dollars ; library and implements of any 
professional man, not exceeding three hundred dollars. 
Wearing apparel, and specified articles. Legal Inter- 
est, eight per cent. 

CONNECTICUT.— Has an insolvent law, but the 
debtor is not permitted to make a preferential assign- 
ment. If his estate pays seventy per cent on all claims 
that have been proved, he will receive his discharge in 
full for such claims only ; all other claims hold good 
against his property after the expiration of two years 
from his discharge. Exemptions : Necessary wearing 
apparel, bedding, . nd furniture. Implements of the 
debtor's trade, and certain specified articles ; the land and 
dwelling actually occupied by the owner, to the value of 
one thousand dollars, provided he has recorded his de- 
claration to the effect that it is his homestead. Statute 
of Limitations bars action on contract under seal, or 



198 APPENDIX. 

non-negotiable note, after seventeen years ; on account, 
book debt, simple contract, writing not under seal, or 
negotiable notes, six years ; express contracts, of which 
there is no written memorandum, three years. Legal 
Interest in the State, six per cent. 

DELAWARE. — Has an assignment law, which does 
not permit preferences in cases of insolvency, nor does 
it permit the discharge of the debtor unless the credit- 
ors severally agree to release. The rights of creditors 
who do not come into an assignment are not affected by 
the assignment, but they will lose their dividends. 
Limitations of Actions : Accounts, three years ; notes, 
six years. Judgments presumed paid in twenty years 
unless rebutted. A verbal promise to pay a debt will, 
if proved, revive it. Legal Interest, six per cent ; 
penalty for usury, forfeiture of a sum equal to the 
amount loaned. Exemptions permitted in this State 
are small and they vary in the different counties. 

DISTRICT OF COLUMBIA. -Preferences in an as- 
signment are void, and all debts are payable pro rata. 
Exemptions : Household furniture and wearing apparel 
of a householder are exempt except for servant's or 
laborer's wages due, to the amount of three hundred dol- 
lars ; provisions and fuel for three months ; mechanic's 
tools or implements, of any trade, to the value of two 
hundred dollars, with stock to the same amount ; library 
and implements of a professional man, to the value of 
three hundred dollars ; farmers' team and utensils to 
the value of one hundred dollars ; family pictures and 
library, to the value of four hundred dollars. Limita- 
tion, of Actions : Actions must be brought within three 
years on simple contracts, book accounts, notes, etc. 
Twelve years is the limit on specialties. Legal In- 
terest, six per cent. 



APPENDIX. 199 

FLORIDA. — A general assignment law exists, which 
does not permit preferences, but which expressly dis- 
charges the debtor if he complies with its provisions. 
It is believed, however, that such discharge is void, if 
the creditor does not reside in the State, and the contract 
was neither made nor to be performed therein. Credit- 
ors who do not come into an assignment lose their divi- 
dends. Exemptions: Homestead of one hundred and 
sixty acres of land and improvements, if in the coun- 
try ; a residence and business house and one-half acre of 
ground, if in a town or city, together with a thousand 
dollars' worth of personal property. Limitations of 
Actions : Accounts, four years ; notes and other unsealed 
instruments, five years. Judgments, bonds, and notes 
under seal, twenty years. Legal Interest, eight per 
cent. 

GEORGIA.— Has an assignment law (the act of 1880- 
81;, which permits preferences under conditions, but 
the unanimous consent of creditors is necessary to the 
insolvent's discharge. Creditors who do not come into 
the assignment simply lose the dividend that may be 
declared. Exemptions : Homestead of realty or person- 
ality, or both, to the value in the aggregate of sixteen 
hundred dollars. Limitations of Actions : Upon open 
accounts, four years; notes, etc., six years ; sealed in- 
struments, twenty years. Judgments must have execu- 
tion issued thereon within seven years, or they become 
dormant. Dormant judgment may be revived within 
three years. Legal Interest, eight per cent. 

IDAHO.— Limitations of Actions: Instruments in 
writing, five years ; contract or liability, not founded 
in writing, including accounts, two years. Exemp- 
tions : Homestead, consisting of dwelling-house thereon 



200 APPENDIX. 

and its appurtenances, not exceeding in value five thou- 
sand dollars, to be selected by the husband and wife, 
or either of them, or other head of family (the usual 
declaration must be made and recorded) . A single per- 
son may claim a homestead, not to exceed one thousand 
dollars in value. There are, besides, many articles 
specified as exempt. Legal Interest, ten per cent. 

ILLINOIS. — Has an assignment law, which permits 
no preferences. Acceptance of dividends does not dis- 
charge the debtor. Creditors who do not come in 
waive claim to the assets assigned. Interest: five 
per cent is allowed when no rate is specified. Limita- 
tions of Actions : Five years upon accounts, unwritten 
contracts, and for injury to property ; upon bonds, notes, 
bills of exchange, leases, and other written contracts, 
ten years. All other actions, including action on judg- 
ments of other States, five years. 

INDIANA.— Has a distinct assignment law, which 
does not, in a general assignment, permit preferences, 
but a special assignment may be made to secure particu- 
lar creditors. Unanimous consent of creditors is neces- 
sary to discharge the debtor. Creditors who do not come 
into an assignment merely lose their share of the assets 
assigned. Limitations of Actions : On accounts and 
contracts not in writing, within six years. On prom- 
issory notes, bills of exchange, and other written con- 
tracts for the payment of money, within ten years. On 
judgments of a court of record, twenty years. Exemp- 
tions : Any resident householder has an exemption from 
levy and sale, under execution or attachment, of real or 
personal property, or both, as he may select, to the 
value of six hundred dollars. The law further provides 
that no property shall be sold, by virtue of an execution, 



APPENDIX. 201 

for less than two-thirds of its appraised cash value. 
This provision may, however, be waived, by inserting 
in the note or contract : " Payable without relief from 
valuation or appraisement laws. " But the right to ex- 
emption cannot be waived by contract. Legal Inter- 
est, eight per cent. 



INDIAN TERRITORY.— Assignments: By Act of 
Congress, the statute of Arkansas applies to this Ter- 
ritory. Exemptions and Limitations, as written in 
Mansfield's Digest of the State of Arkansas (1884), apply 
to this Territory. Legal Interest, on open accounts, 
made in the Territory, six per cent. If not made there, 
rate is fixed by the law of the State where made. Con- 
tracts draw rate contracted for, unless the rate is usuri- 
ous in the State where the contract is made. Land can- 
not be sold under executions. Judgments must be satis- 
fied from personal property. 

IOWA. — Has a general assignment law, which does 
not permit preferences ; but independent of this law, 
and before assignment, preferences to creditors are al- 
lowed, if in good faith. The unanimous consent of 
creditors is required for the debtor's discharge. Credit- 
ors who do not come into the assignment do not receive 
a dividend from the assets. Their claims remain un- 
impaired. Limitations of Actions: Accounts, five 
years ; notes and written instruments, ten years ; judg- 
ments, twenty years. The failure to account for goods 
consigned is embezzlement. Legal Interest, six per 
cent. Exemptions : Homestead used as a residence by 
the owner, not exceeding half an acre in extent, if 
within a town plot (or if not, it must not embrace more 
than forty acres) with other specified personal property. 



202 APPENDIX. 

KANSAS.— Has an assignment law, which operates 
only to distribute the debtor's property ratably among all 
his creditors who prove their claims, but it does not dis- 
charge him from his debts. Creditors who do not come 
in do not participate in the assigned property, but 
their claims continue valid. Limitations of Actions : 
Upon actions not in writing, three years ; actions upon 
agreements, contracts, and promises in writing, five 
years. Judgments become dormant five years after the 
date of their rendition, or of the last execution issued 
thereon. A dormant judgment must be revived within 
one year after it has become dormant, or the right to 
revive is gone. Legal Interest, six per cent. Ex- 
emptions : A homestead, to the extent of one hundred 
and sixty acres of farming land, or one acre within the 
limits of an incorporated town or city, occupied as a 
residence by the family of the owner, together with all 
improvements on the same, shall be exempt from forced 
sale under any process of law, and shall not be alienated 
except by joint consent of husband and wife, when that 
relation exists. Not exempt, however, for taxes, or 
purchase-money obligations, or liens for improvements. 
No value is affixed to the homestead. It may be worth 
a million dollars. Earnings necessary for the support 
of the debtor's family are also exempted, and certain 
specified articles. 

KENTUCKY. —Voluntary assignments by debtors 
must be made for the benefit of all creditors. Any 
creditor not presenting his claim within due time will 
be barred, unless otherwise ordered by the court. 
Limitation of Actions : Actions upon merchant's ac- 
counts for goods sold to consumers shall be brought in 
two years, the time to be computed from the first day 
of January next after the goods are sold and charged. 



APPENDIX. 203 

Actions upon contract, express or implied, not in writ- 
ing, or bills of exchange, drafts, or upon a promissory- 
note placed on the footing of a bill of exchange, or upon 
accounts between merchants or their agents, must be 
brought within five years. Actions upon judgments or 
contracts in writing must be brought within fifteen 
years. Exemptions : There is a homestead exemption 
of $1,000 to an actual, bona fide, resident housekeeper; 
with certain articles of personal property, and wages not 
to exceed fifty dollars, to persons who work for wages, 
under certain conditions. Legal Interest, six per 
cent. 

LOUISIANA.— This State does not permit assign- 
ments of any sort, but it has an insolvent law, under 
which, by consent of a majority in number and amount 
of his creditors, a debtor may obtain his discharge, ex- 
cept as to those out of the State, and to these the State 
courts are closed to suits against the insolvent debtor. 
Exemptions : Homestead under certain conditions, 
specified articles, laborers' wages, etc. Limitations of 
Actions : Prescription of three years on all accounts, 
money lent, etc. This prescription only ceases from 
the time there has been an account acknowledged in 
writing, a note or bond given, or an action commenced. 
Five years — actions on bills of exchange and promissory 
notes, or rescission of contracts. Ten years — all judg- 
ments for money ; may be revived at any time before 
prescription has run. Thirty years — all actions for im- 
movable property. Legal Interest, five per cent. 

MAINE. —Has an insolvency law, which does not 
permit preferences, but provides for the discharge of a 
debtor who is for the first time insolvent. Those who 
do not come into the assignment, should one be made, 



204 APPENDIX. 

lose their dividends, but creditors who are not residents 
of the State may still enforce their claims. Limitations 
of Actions : All actions of debt, founded on contracts 
not under seal, must be commenced within six years 
after cause of action accrues ; judgments and witnessed 
promissory notes, twenty years. Exemptions: By 
complying with certain statutory provisions (not often 
taken advantage of) , there is exempted a lot of land, 
dwelling-house, etc., not exceeding five hundred 
dollars in value — besides specified articles. Legal In- 
terest, six per cent. Any rate may be fixed by con- 
tract. 

MARYLAND. — Has a State insolvency law, which 
permits an assignment with preferences, under certain 
conditions. The debtor may obtain his discharge under 
the provisions of this law, but it is a nullity against 
non-resident creditors, unless they waive their right by 
voluntarily becoming parties to, and claiming under 
the insolvency proceedings. Limitations of Actions : 
Accounts and notes are barred after three years. Sealed 
instruments and judgments after twelve years. A 
verbal promise will revive a debt barred by the Statute 
of Limitations. Exemptions : One hundred dollars' 
worth of property is exempt, and, in addition thereto, 
all wearing apparel, books, and the tools of mechanics, 
except books or tools kept for sale. Legal Interest, 
six per cent. 

MASSACHUSETTS. —Has a separate and distinct in- 
solvent law. The debtor is not allowed to make a pref- 
erential assignment unless made six months before the 
filing of the petition in insolvency. The debtor may 
obtain his discharge if his assets pay fifty per cent of 
the claims proved ; otherwise, assent in writing of ma- 



APPENDIX. 205 

jority in number and value of creditors who have 
proved is necessary. Claims not proved are barred, 
unless creditors are non-residents. Limitations of Ac- 
tions : Accounts and actions of contract (excepting ac- 
tion brought upon a promissory note, signed in the 
presence of an attesting witness), six years. Judg- 
ments and actions, not specially otherwise limited, 
twenty years. Exemptions : Homestead of a house- 
holder having a family, to the value of eight hundred 
dollars, if he has duly declared his design to hold it as 
a homestead, and recorded it in compliance with the 
law ; besides other specified articles. Legal Interest, 
six per cent. 

MICHIGAN. — There is in this State an assignment 
law. Preferences are forbidden. The debtor cannot 
obtain his discharge without unanimous consent of his 
creditors. Those who do not come into the assignment 
within ninety days, and prove their claims, lose their 
share of the assets assigned. Limitations of Actions : 
Six years on accounts and notes ; justices' Judgments, six 
years. Sealed instruments, and judgments of courts of 
record, ten years. Exemptions : Land not exceeding 
forty acres, dwelling, and improvements in the country ; 
or land not exceeeding one lot in town or city, with 
dwelling, etc., owned and occupied by a resident of the 
State, to the value of fifteen hundred dollars; also 
specified articles. Legal Interest, six per cent. 

MINNESOTA.— Has an assignment law, which does 
not permit preferences. Limitations : All actions on 
contracts, express or implied, must be commenced 
within six years. Judgments, ten years. Exemptions: 
Homestead, consisting of not to exceed eighty acres of 
land, with dwelling and appurtenances, in the country ; 
14 



206 APPENDIX. 

or one lot, with dwelling, in a town or city having over 
five thousand inhabitants, or one-half acre in a town or 
village having less than five thousand inhabitants, and 
dwelling, with appurtenances, owned and occupied by 
any resident of the State. Legal Interest, ten per 
cent. 

MISSISSIPPI. — A distinct assignment law exists, 
which went into operation with the adoption of the 
new code, in the fall of 1892. It permits preferences, 
but acceptance of a dividend from an estate under as- 
signment does not discharge the debtor. Those who do 
not come in get no distributive share. Exemptions : 
Homestead land, not to exceed one hundred and sixty 
acres, with buildings, owned and occupied as a residence, 
not exceeding two thousand dollars in value. This may 
be increased to three thousand dollars, by making and 
recording a homestead declaration. There are numer- 
ous other specified exemptions of implements and per- 
sonal property. Limitations of Actions : Accounts and 
all unwritten contracts, three years; notes, bonds, etc., 
six years ; judgments, seven years. Partial payments 
do not stop the running of limitations. Legal Inter- 
est, six per cent 

MISSOURI. — Hasan assignment law, preferences not 
permitted. Debtor is not discharged without consent 
of his creditors. Acceptance of dividend does not pre- 
vent creditor from placing balance of his claim in judg- 
ment. Limitations of Actions : On accounts, five years ; 
notes and sealed instruments, ten years; judgments, 
ten years. Exemptions: Homestead of resident, mar- 
ried man, with varying quantity of land, according to 
locality in the country, or in town or city according to 
population, not to exceed in value fifteen hundred doi- 



APPENDIX. 207 

lars. Personal property or real estate, to the amount of 
not less than three hundred dollars ; with tools, furni- 
ture, etc., as specified. Legal Interest, six per cent. 

MONTANA. — Assignments may be made at common 
law, with preferences. Acceptance of a dividend from 
an estate under assignment does not discharge the 
debtor. Those who do not come in lose their dividends. 
Limitations op Actions: Upon accounts, five years; 
note, or written obligation, eight years ; judgments, ten 
years. Exemptions : To married men, or the head of a 
family, homestead, not to exceed in value twenty-five 
hundred dollars, with other specified exemptions ; none 
of the personal property is exempt for the wages of any 
clerk, mechanic, laborer, or servant. Legal Interest, 
ten per cent. 

NEBRASKA.— Has a distinct assignment law, which 
does not permit preferences, and acceptance of a divi- 
dend does not discharge the debtor. Those who do not 
come in merely lose their distributive share of the as- 
sets. Limitations op Actions : Actions upon specific 
written contracts, or foreign judgments, must be 
brought within five years ; actions upon contracts not 
in writing, four years. Exemptions : Homestead with 
dwelling thereon and its appurtenances, all not over two 
thousand dollars in value, to the head of a family. 
Heads of families, who have neither lands nor houses 
subject to exemption as a homestead, shall have exempt 
from forced sale on execution, the sum of five hundred 
dollars in personal property. Other exemptions of 
specified articles, etc. Legal Interest, seven per cent. 

NEVADA.— Has "an act for the relief of insolvent 
debtors and protection of creditors" — does not permit 



208 APPENDIX. 

preferences. By giving up all his property, and men- 
tioning all his creditors, with amounts due them, etc., 
in his schedule, the debtor may obtain his discharge. 
Limitations of Actions : Upon contract, obligation or 
liability not founded upon an instrument in writing, 
within four years ; if founded upon an instrument in 
writing, five years; judgments, six years. Exemp- 
tions : Homestead, not exceeding five thousand dollars 
in value, for the head of a family, and other specified 
exemptions. Legal Interest, ten per cent. 

NEW HAMPSHIRE. —Has assignment law; permits 
no preferences. If debtor's estate pays seventy per 
cent, he is entitled to a discharge. If less than seventy 
per cent, he can be discharged only on written consent 
of three-quarters in number and amount of his creditors. 
Limitations of Actions : Accounts and simple promis- 
sory notes, six years after maturity. Judgments, sealed 
instruments, and notes secured by mortgage of real 
estate, twenty years. Exemptions : Homestead, to the 
value of five hundred dollars, with specified articles. 
Legal Interest, six per cent. 

NEW JERSEY.— Has an insolvent law, which affects 
only persons imprisoned for debt under it ; the debtor's 
body may be released from imprisonment, but claims are 
not released. The debtor may make an assignment of 
his property for the benefit of his creditors, but without 
preferences. Claims not due receive dividends, less a 
reasonable rebate of interest ; failure of the creditor to 
file his claim before distribution of the assets bars him 
from receiving his share of the dividends. Creditors 
who have presented their claims are barred from after- 
ward bringing suit against the debtor upon them, unless 
fraud is proved. Outside of this law, a debtor may 



APPENDIX. 209 

prefer any of his creditors by conveying his property to 
them. He may also, at any time before judgment and 
execution, sell, for a sufficient consideration, property 
which would otherwise be subject to the claims of his 
creditors. Exemptions : Property to the value of two 
hundred dollars, exclusive of wearing apparel. Limi- 
tations : Accounts, notes, and contracts, not under seal, 
six years ; bonds and other sealed instruments, sixteen 
years ; judgments, twenty years. Legal Interest, 
six per cent. 

NEW MEXICO. — Has a voluntary assignment act. 
The proceedings are very elaborate. Preferences not 
allowed ; acceptance of a dividend does not discharge 
debtor. Those who do not come in lose their dividends. 
Limitations : Unwritten contracts, four years. Writ- 
ten instruments and judgments, seven years. Exemp- 
tions : Homestead, to the value of one thousand dollars, 
furniture, and specified articles. Legal Interest, six 
per cent. 

NEW YORK. — Has both an assignment and an in- 
solvent law ; The latter sometimes called the " Two- third 
Act. " The debtor may make a preferential assignment, 
under certain limitations and conditions, or he may 
obtain a discharge from certain classes of his obliga- 
tions under the insolvent law, without the unanimous 
consent of his creditors. Acceptance of a dividend 
under the assignment does not discharge the debtor. 
Creditors who do not come into the assignment lose their 
dividends, but retain their claims. Exemptions : The 
lot and buildings, not exceeding one thousand dollars 
in value, owned and occupied by a housekeeper, having 
a family, and recorded as homestead property ; with 
furniture and various articles, not exceeding two hun- 
14 



210 



APPENDIX. 



dred and fifty dollars in value. Limitations : Actions 
upon a judgment of a court of record, or a sealed instru- 
ment, must be brought within twenty years after the 
cause of action accrued. And upon any other contract, 
obligation or liability, including a justice's judgment, 
within six years. Eegal Interest, six per cent. 

NORTH CAROLINA.— Assignments may be made, 
without preferences. All debts of assignor fall due 
and are payable on the date of assignment. Exemptions : 
Homestead, with buildings, etc., to the value of one 
thousand dollars, and personal property to the value of 
five hundred dollars. Limitations: Three years, on ac- 
counts and contracts, not under seal ; ten years, on a 
note under seal. Legal Interest, six per cent. 

NORTH DAKOTA.— Insolvent debtor may make an 
assignment for the benefit of his creditors, but without 
preferences. Exemptions : Homestead, with dwelling 
and appurtenances, not exceeding in value five thousand 
dollars, is exempt, under certain conditions. A part- 
nership firm or an individual may also, in addition to 
wearing apparel, etc. , claim as exempt fifteen hundred 
dollars' worth of other personal property. Limitations : 
On judgments, or on sealed instruments, twenty years ; 
on a contract, obligation, cr liability, express or implied, 
six years. Legal Interest, seven per cent. 



OHIO.— Has a distinct assignment law, which does 
not permit preferences. Acceptance of a dividend does 
not discharge the debtor. Creditors who do not come 
in receive no dividend. Limitations : Actions upon a 
contract not in writing, six years ; upon a sealed in- 
strument, or an agreement, contract, or promise in writ- 
ing, fifteen years ; judgment is dormant if no execu- 



APPENDIX. 211 

tion is issued within five years after its date. An action 
to revive dormant judgment must be brought within 
twenty-one years after it becomes dormant. Exemp- 
tions : To head of a family, homestead, not exceeding 
one thousand dollars in value, and chattel property. If 
not the owner of a homestead — personal property to the 
value of five hundred dollars, in addition to chattel 
property. Legal Interest, six per cent. 

OKLAHOMA TERRITORY. —Assignments may be 
made for the benefit of creditors, without preferences. 
Limitations : Accounts and contracts, not in writing, 
three years ; agreement or contract in writing, five 
years. Exemptions : To head of a family, one hundred 
and sixty acres in one tract, with improvements, if out- 
side of a town or city. In a city or town, not to exceed 
one acre. Judgment debtor has a right to select six 
hundred dollars' worth of property, which shall be ex- 
empt from any levy. Legal Interest, seven per cent. 

OREGON. — Assignments must be for the equal benefit 
of all creditors, without preferences. Debtor is entitled 
to a discharge, if his estate pays fifty per cent to his 
creditors. Limitations : Judgments, ten years. Action 
upon a contract or liability, express or implied, six 
years. Exemptions : Homestead, not exceeding in 
value fifteen hundred dollars, with chattels. Legal 
Interest, eight per cent. 

PENNSYLVANIA. —Insolvent may make a voluntary 
general assignment for the benefit of his creditors, 
without preferences. But the debtor can do in other 
ways what substantially amounts to a preferential as 
signment, viz. , before he makes his general assignment, 
he may assign part of his property to one or more credit- 



212 



APPENDIX. 



ors ; or he may confess judgment, under which the 
favored creditor may make a levy, and obtain priority. 
Creditors who do not come into the assignment simply 
fail to get their share, their claims remain intact. 
Limitations : Notes and accounts, six years ; judgments 
and instruments under seal, twenty years, by presump- 
tion, but this presumption may be rebutted. Exemp- 
tions: Things of domestic use, to the value of three 
hundred dollars. Legal Interest, six per cent. 

RHODE ISLAND. — Has no distinct assignment or 
insolvent law, but debtor may make an assignment ; 
preferences are forbid, except for the wages of labor, 
performed within six months previous. Judgment by 
default, or confession, cannot be made to defeat general 
creditors. Acceptance of a dividend does not discharge 
the debtor, nor does he obtain such discharge, without 
the unanimous consent of his creditors. Those who do 
not come into the assignment lose their share of the 
dividends. Limitations: Accounts, six years; simple 
promissory notes, six years; sealed instruments and 
judgments, twenty years. Oral promise, or partial 
payment, will revive the debt. Exemptions : There is 
no homestead exemption. Household furniture and 
family stores of housekeeper are exempt, to the value 
of three hundred dollars, with wearing apparel, etc. 
Debts secured by promissory notes or bills of exchange 
are also exempt. Legal Interest, six per cent. 



SOUTH CAROLINA.— There is in this State a law 
for the relief of persons arrested in civil actions ; undue 
preferences are forbidden. A discharge releases the 
insolvent from all suing creditors, and from all other 
creditors who shall come in and accept a dividend of the 
assigned effects. The debt due to a creditor is not 



APPENDIX. 213 

affected if he does not participate in the dividends. 
Limitations : Judgments and sealed instruments, twenty 
years ; other actions, six years. Exemptions : Family 
homestead of the head of family, to the value of one 
thousand dollars, and yearly produce thereof ; also to 
head of family, certain goods and chattels, to the value 
of five hundred dollars. Legal Interest, seven per 
cent. 

SOUTH DAKOTA.— An insolvent debtor may ex- 
ecute an assignment of property to one or more as- 
signees, in trust, toward the satisfaction of his credit- 
ors ; but such assignment shall not be valid, if it contain 
any trust or condition by which any creditor is to re- 
ceive a preference over any other creditor. Limitations : 
Sealed instruments, twenty years ; judgments, ten 
years ; notes and contracts, express or implied, six 
years. Exemptions : Homestead, with improvements 
thereon, not exceeding in value five thousand dollars ; 
domestic goods and chattels specified ; and, to head of 
family, the right to select seven hundred and fifty 
dollars' worth of other personal property, under certain 
conditions. If a single person, three hundred dollars' 
worth. Legal interest, seven per cent. 

TENNESSEE. —Has two general classes of assign- 
ments, namely : (1) General assignments, which are the 
creatures of statute, are very technical, and have been 
practically abandoned. Attempt to prefer creditors 
renders a general assignment fraudulent. (2) Partial 
assignments, which may include all of the debtor's prop- 
erty if it does not profess to do so. In this form of as- 
signment, preferences may be made. Creditors not 
included in partial or "special" assignments have no 
remedy, except by reaching property of the assignor 



214 



APPENDIX. 



not included in the instrument, or by having the as- 
signment set aside, provided, of course, there be grounds 
for such action. Limitations : Judgments, ten years. 
(There are no sealed instruments in Tennessee) . Notes 
and accounts, six years. Exemptions : Homestead, to 
the value of one thousand dollars, and a long list of 
specified articles. Legal Interest, six per cent. 

TEXAS. — Has an assignment law, which does not 
permit preferences; but these can be made under a 
deed of trust, which is now the course pursued b} T in- 
solvent debtors. Acceptance of a dividend from an 
estate under assignment discharges debtor if total divi- 
dends amount to one-third of creditor's claims. Those 
who do not come into an assignment lose their divi- 
dends, but preserve their claims. Limitations: Ac- 
counts, two years ; notes, four years ; judgments, ten 
years. Exemptions : Homestead occupied as a home, 
or as a place to exercise the calling or business of the 
head of a family, to the value of five thousand dollars 
without reference to the value of any improvements 
thereon ; also, specified goods and chattels. Legal In- 
terest, six per cent. 



UTAH. —No separate, distinct assignment, insolvency, 
or bankrupt law exists in this Territory ; but the debtor 
is permitted by law to make an assignment, with prefer- 
ences ; but he cannot obtain a discharge without the 
unanimous consent of creditors, who lose their divi- 
dends, but preserve their claims, if they do not come in. 
Limitations : Accounts, two years ; notes and written 
obligations, four years ; judgments of a court of record, 
five years. Exemptions : (No property owned by non- 
residents is exempt.) If the debtor is the head of a 
family, there is exempt, homestead, valued at one thou- 



APPENDIX. 215 

sand dollars, five hundred additional for wife, and two 
hundred and fifty for each other member of the family ; 
besides goods and chattels specified. Legal Interest, 
eight per cent. 

VERMONT.— Has insolvency laws, both voluntary 
and involuntary. Insolvent debtor is not allowed to 
make preferential assignment. When his assets pay 
thirty per cent, or by vote of majority in number and 
amount of his creditors, debtor is discharged. Second 
discharge, only by payment of fifty per cent, or, by 
vote of three-fourths in number and amount, of his 
creditors. Foreign creditors, who do not submit to the 
jurisdiction of the insolvency court, may recover judg- 
ment against the debtor, notwithstanding his discharge 
in insolvency. Limitations : Accounts and simple 
promissory notes are barred in six years. Notes signed 
in presence of an attesting witness, fourteen years. 
Sealed instruments and judgments, eight years. Ex- 
emptions : Homestead, to the value of five hundred dol- 
lars, and products, with specified goods and chattels. 
Legal Interest, six per cent. 

VIRGINIA.— Has no separate and distinct assign- 
ment, insolvency, or bankrupt law. But the debtor can 
make a preferential assignment. The unanimous con- 
sent of creditors is required for the discharge of the 
debtor. Creditors who do not come into the assign- 
ment lose their dividends, but preserve their claims. 
Limitations : Five years on accounts, (except for articles 
charged in retail stores, which is two years) ; notes and 
contracts, five years ; sealed instruments, ten years. 
Judgments ten years (in some cases twenty years). 
Exemptions : Householder or head of a family may hold 
exempt his real and personal property, or either, in- 



216 APPENDIX. 

eluding money or debts due him, to a value not exceed- 
ing two thousand dollars, to be selected by him, with 
certain specified articles. Intention to claim such 
homestead exemption must be declared and recorded. 
Legal Interest, six per cent. 

WASHINGTON.— Has an insolvent law. General 
assignment of a debtor must be for the benefit of all his 
creditors, in proportion to the amount of their claims, 
and when the requirements of the law are complied 
with, the debtor is discharged from further liability. 
Limitations: Upon contracts not in writing, three 
years. Upon judgments, or contracts in writing, six 
years. Exemptions : Homestead, with numerous 
specified articles, and special exemptions. Legal In- 
terest, seven per cent. 

WEST VIRGINIA.— General assignments can be 
made, without preferences. Unanimous consent of 
creditors required for debtor's discharge. Acceptance 
of a dividend from the assignee does not discharge 
debtor. Creditors who do not come into an assignment 
do not impair their rights of action, and there is no 
reason why they should refuse to accept their dividends. 
Limitations: Accounts, five years (except articles 
charged in a store account, which is three years) ; con- 
tracts under seal, ten years; judgments, ten years. 
Exemptions : Homestead, to the value of one thousand 
dollars, to a husband or parent, if declaration is previ- 
ously made and recorded ; also to husband, parent, or 
married woman, personal property to the value of two 
hundred dollars ; also tools of a mechanic or laborer, to 
the value of fifty dollars. Legal Interest, six per 
cent. 



APPENDIX. 217 

WISCONSIN. — Has both an assignment and an in- 
solvency law . Preferences are not perm itted, except for 
wages earned within six months. Under the insolvent 
law, all debts are discharged. Limitations: Accounts, 
six years; notes, six years; sealed instruments, ten 
years, when the cause of action accrued without the 
State and twenty years when it accrued within the 
State ; twenty years upon a judgment within the State, 
and ten years on a judgment recovered out of the State. 
Exemptions : Homestead in the country, used for agri- 
cultural purposes, with dwelling-house thereon, and 
appurtenances, or, at the option of the owner, land 
(with dwelling, etc.) not to exceed one-fourth of an 
acre, in a city or village ; with various other specified 
exemptions. Legal Interest, six per cent. 

WYOMING. — Has an assignment law, which is void, 
if made with a view to preferring a creditor. Accep- 
tance of a dividend from an estate under assignment 
discharges the debtor. Creditors who do not come into 
an assignment lose their dividends, but preserve their 
rights of subsequent action. Limitations: Action on 
any agreement in writing, five years ; on actions on ac- 
counts, and contracts not in writing, eight years; on 
all foreign claims, judgments, or contracts contracted 
or incurred before the debtor becomes a resident, action 
shall be commenced within two years after established 
residence. Exemptions : Homestead occupied by owner 
or his family, not exceeding in value fifteen hundred 
dollars ; household property, owned by the head of a 
family, to the value of five hundred dollars; other 
specified exemptions for mechanics, miners, etc. 
Legal Interest, eight per cent. 



A BOOK FOR ALL BUSINESS MEN. 



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